Understanding the 2025 Tax Season Delay for Capital Gains Filers

Delay in Filing Taxes for Capital Gains

The 2025 tax season is in full swing, but the Canada Revenue Agency (CRA) has issued an important update for Canadians who earned capital gains last year. In a recent announcement, the CRA has advised individuals and entities affected by capital gains to hold off on filing their T1 and T3 returns until further notice. This delay is due to ongoing system updates required to reflect the current capital gains inclusion rate of 50%. The federal government had initially planned to increase this rate to 66.7% for certain gains, but it has since reversed this decision, and the CRA is now working to adjust its systems accordingly.

The CRA has confirmed that while the tax forms have been updated to the current 50% inclusion rate, the necessary changes to its internal systems and the certification of tax software are still being finalized. This means that until these updates are complete, taxpayers with capital gains may face challenges in submitting their returns. The agency expects these updates to be completed in the coming weeks, with most tax preparation software expected to be certified by the end of March.

Impact on Taxpayers

For taxpayers who earned capital gains last year, this delay could cause some initial confusion or inconvenience. However, it’s important to understand that the CRA is taking this step to ensure accuracy in tax filings. Filing a return prematurely, before the systems are fully updated, could lead to errors or delays in processing. The CRA has made it clear that it is working diligently to resolve this issue and has provided guidance to help taxpayers navigate this situation.

Until the certification process for tax software is finalized, users may not be able to print or submit their tax returns to the CRA. Additionally, the notice of assessment for any returns that have already been submitted with capital gains cannot be finalized until the system updates are complete. This underscores the importance of waiting until the updates are in place before proceeding with filing.

Government’s Reversal on Capital Gains Inclusion Rate

The root of this issue lies in a recent policy reversal by the federal government. In Budget 2024, the Liberal government proposed increasing the capital gains inclusion rate from 50% to 66.7% for gains realized above $250,000 annually for individuals. This change was set to apply to corporations and certain trusts as well. However, after months of uncertainty and likely pushback from stakeholders, the government announced in January 2025 that it would delay the implementation of this change until January 1, 2026.

Despite this delay, the CRA had already begun administering the proposed 66.7% inclusion rate following a notice of ways and means motion in September 2024. This has created a temporary mismatch between the government’s intentions and the CRA’s system capabilities, necessitating the current update process. The agency is now working to revert its systems back to the 50% inclusion rate to align with the government’s latest directive.

Relief Measures for Taxpayers

To accommodate the delay, the CRA has announced relief measures for taxpayers affected by this situation. For individual filers, penalties and interest on any outstanding taxes will be waived until June 2, 2025. For trust filers, the waiver period is slightly shorter, ending on May 1, 2025. These extensions are intended to give taxpayers additional time to file their returns without incurring penalties, once the CRA’s systems are fully updated.

It’s important to note that the standard deadline for most individuals to file their taxes and pay any owed amounts is still April 30, 2025. Missing this deadline could result in penalties and interest, unless the taxpayer is covered by the CRA’s waiver. The agency’s decision to extend the deadline for capital gains filers is a recognition of the extraordinary circumstances caused by the system updates and the government’s policy reversal.

CRA’s Efforts to Address the Issue

The CRA has emphasized that it is doing everything in its power to minimize disruptions for taxpayers. The agency is working closely with tax software providers to ensure that their products are certified for the current tax season as quickly as possible. This certification process is critical, as it ensures that tax returns can be accurately processed once they are submitted.

CRA spokesperson Sylvie Branch has provided reassurance that the updates are a top priority and that the agency is committed to resolving the issue promptly. In the meantime, taxpayers with capital gains are encouraged to wait patiently and avoid attempting to file their returns until the systems are ready. The CRA has also committed to providing regular updates on its progress, which will be shared through its official channels.

What Taxpayers Should Do Next

For taxpayers who are affected by this delay, the best course of action is to wait until the CRA confirms that its systems and tax software are ready for capital gains reporting. This will ensure that their returns are filed accurately and without unnecessary complications. In the meantime, taxpayers are encouraged to gather all necessary documentation and consult with tax professionals if they have any questions or concerns.

The CRA’s decision to delay the filing process for capital gains highlights the complexities of tax administration, especially when policy changes occur. While the delay may cause some short-term inconvenience, it is a necessary step to ensure the integrity of the tax system. Taxpayers can rest assured that the CRA is working diligently to resolve the issue and will communicate further updates as they become available.