Businesses – Tax Information Newsletter, Edition: 2025-02

Note on the Canada Revenue Agency’s Administration of the Proposed Capital Gains Taxation Changes

Last month, the Department of Finance announced that it will introduce legislation in Parliament in due course, related to the capital gains inclusion rate change with a new effective date of January 1, 2026. As a result, the Canada Revenue Agency (CRA) has reverted to administering the currently enacted capital gains inclusion rate of one-half. This means that all capital gains realized before January 1, 2026 will be subject to the currently enacted inclusion rate of one-half, unless an exemption applies.

The CRA will grant relief in respect of late-filing penalties and arrears interest until June 2, 2025, for impacted T1 Individual filers and until May 1, 2025, for impacted T3 Trust filers to provide additional time for taxpayers reporting capital dispositions to meet their tax filing obligations.

With the proposed change to the effective date, the CRA will issue forms that have been reverted to the currently enacted rate in the coming weeks.

As the capital gains rate change is now proposed to be effective January 1, 2026, corporations can continue to use existing forms and tax software to file using the one-half inclusion rate until further notice.

Visit our tax tip for more information.

Trust Reporting

For the 2024 tax year, the CRA will continue to administer the enhanced trust reporting rules as enacted for tax years ending on or after December 31, 2023. Affected trusts are required to file a T3 Trust Income Tax and Information Return (T3 return), including Schedule 15 (Beneficial Ownership Information of a Trust), unless specific conditions are met.

Reminder: As announced on October 29, 2024, bare trusts are not required to file a T3 return and Schedule 15 for the 2023 and 2024 tax years, unless the CRA makes a direct request for these filings. Find out more: Trust reporting for the 2024 tax year.

The deadline to file the T3 return is no later than 90 days after the trust’s tax year-end. The tax year-end for most trusts is the end of the calendar year. Therefore, trusts with a December 31, 2024 tax year-end need to file their T3 return by March 31, 2025. For more information, go to When to file a trust return.

Update on the Filing of Information Returns

If you file information returns, such as the T3 (trust income), T4 (remuneration paid), T4A (pension and other income), or T5 (investment income), there are some important updates you need to be aware of. These updates include relief that the CRA is granting in respect of late-filing penalties for information returns filed electronically on or before March 7, 2025, for those information returns normally due on February 28, 2025.

For more information on this and the other updates, please visit Update on the filing of information returns.

Reporting the Canada Carbon Rebate for Small Businesses on Your T2 Corporation Income Tax Return

Under the current legislation, the Canada Carbon Rebate for Small Businesses is considered assistance received from a government and is subject to taxation. As such, it must be included in taxable income when filing your T2 corporation income tax return for the year in which the rebate was received.

The Government of Canada has proposed that the rebate be tax-free. However, a legislative amendment is required to implement this proposal.

If a legislative amendment is enacted, the CRA will have the authority to process amended T2 corporation income tax returns. Further guidance will be provided at that time.

Visit Canada Carbon Rebate for Small Businesses to stay informed.