With the April 30 tax-filing deadline already here, the Canada Revenue Agency (CRA) has confirmed that T1 filers who also have T3 tax slips with capital gains are eligible for the previously announced interest and late-filing penalty relief to June 2.
On Jan. 31 when the Department of Finance deferred the now-defunct proposed increase to the capital gains inclusion rate, the CRA said T1 taxpayers with capital gains to report have until June 2 to file their returns, and trusts with capital gains (including mutual funds and ETFs) have until May 1 to file. More specifically, the CRA provided the relief to “impacted” filers with “capital dispositions,” and tax practitioners have since sought clarity about which taxpayers are affected.
“There are circumstances where a capital gain may be reported without disposing of capital property,” said Judith Charbonneau Kaplan, vice-president of advanced wealth planning strategy and services with Wellington-Altus Private Wealth Inc. in Kelowna, B.C., in an email. She gave the example of capital gains reported on a T3 slip from a mutual fund. “The gains are not the result of a disposition of capital property, but rather are capital gains realized by the mutual fund and flowed through to investors.”
On Tuesday, Ryan Minor, director of tax with CPA Canada in Sudbury, Ont., posted on LinkedIn confirmation from the CRA that the filing extension applies to T1 filers who have T3 slips that report capital gains and losses: “Interest and penalty relief applies to any T1 income tax and benefit return where there is a capital disposition to be reported for the 2024 tax return on Schedule 3. This includes for capital gains/losses included on a T3 slip that are reported on Schedule 3.”
Minor said in an interview that “people generally understood [taxpayers with T3 slips] to be included” in the June 2 filing extension, given the extended deadline of May 1 for trust returns and T3 slips. “But it’s nice to have the official confirmation,” he said. “If you know your client has a T3 slip with a gain, you know it’s not a crisis” if you can’t get the return in on April 30.
“Clarifying the impacted filers is welcome news and could have a broad implication for many Canadians who do have T3s,” said Henry Korenblum, president of Korenblum Wealth Inc. in Toronto. The clarification “is a little late to the game, no question” he said; still, it “buys you a bit more time” to file.
“It is unfortunate that CRA chose not to provide clarity before the last day for personal tax filing,” Charbonneau Kaplan wrote in her email, referencing last year’s bare trust filing debacle when the CRA granted filing relief just ahead of deadline.
Regarding interest and penalty relief related to capital gains and T3s, “there have been many questions to CRA from practitioners over the past several months and calls for CRA to clarify its position, with no clarity forthcoming,” she said. “As a result, most tax practitioners have likely been hesitant to advise clients in this situation to delay filing, as there was too much uncertainty around whether they would in fact qualify for relief.”
With Tuesday’s clarity from CPA Canada, “some taxpayers may opt to delay filing owing to some of the other issues that have popped up this tax season,” Charbonneau Kaplan said, noting cases of duplicate or missing slips in CRA portals. “For some, this may avoid filing with incomplete or inaccurate information and needing to amend down the road.”
Charbonneau Kaplan also noted that the CRA hasn’t published its confirmation about the relief applying to gains/losses from T3 slips. As such, some tax practitioners may be “reticent to rely on comments not relayed publicly by CRA,” she said.
Minor reiterated that the spouses of affected T1 filers don’t get the relief. A couple of months ago, the CRA confirmed that spouses of taxpayers with capital gains generally don’t get the extension, which could result in complications for spouses who split pension income, for example.
Spouses are eligible for the filing extension, the CRA confirmed, when it comes to any forms and elections, including T1135s (foreign income verification), that are normally included with T1 returns — although Minor said the CRA hasn’t listed the specific forms and elections, so “there is that uncertainty.”
Another issue tax practitioners are grappling with this tax-filing season is trust returns getting penalties despite correct reporting on Schedule 15. “There is some kind of an error going on where the CRA is giving penalties,” Minor said. “It seems to be systematic.” He suspects the returns may be getting flagged as late, when that’s not the case.
The CRA’s confirmation regarding T1 filers with T3 slips with capital gains/losses comes during an onerous tax-filing season that has also included error codes when submitting returns in addition to duplicate or missing tax slips in CRA portals. Many tax practitioners are struggling to complete tax returns on time and correctly as they input data manually and attempt to ensure that clients’ tax slips are properly accounted for. They’re warning clients of increased costs and the need to triage returns based on various filing deadlines.