Category: Domestic Tax

Secondary Suites: Various Tax Implications

Posted on by dflanagan

There are several reasons an individual might convert part of their home into a rental property. However, this action can have significant income tax implications, including potentially limiting access to the principal residence exemption, which can be easily overlooked.

Two June 27, 2024, Technical Interpretations analyzed the tax implications of creating secondary suites. The suites reviewed in one interpretation were eligible for provincial program that provided forgivable loans, while the suite in the other interpretation qualified for the multigenerational home renovation tax credit.

Provincial program – forgivable loan

The program (BC Secondary suite incentive program) offers a forgivable loan to homeowners who create a new secondary suite or accessory dwelling unit on the property of their principal residence. For this particular program, the loan would be forgivable if the suite is rented at below-market rates for at least five years. The secondary suite must be a newly constructed legal self-contained unit and could include secondary suites attached to the primary residence (e.g. basement suites) or detached secondary suites (e.g. laneway homes and garden suites). Participants must enter into a rental agreement with a tenant who is not an immediate family member. Similar programs may be offered in other provinces and jurisdictions.

Source of income

CRA opined that the rent received would likely be a source of property income. The actual rent would be reported and not adjusted to fair market value. CRA noted that it was possible, depending on all facts and circumstances, that the activity would not be a source of income, in which case any losses would not be deductible.

Treatment of forgivable loan

The forgivable loan would generally be government assistance and result in a reduction of the cost of the secondary suite.

Change of use

CRA noted that a taxpayer who has partially converted their principal residence to an income-producing use would be deemed to dispose of (and reacquire) that part of the property for proceeds equal to its proportionate share of the property’s fair market value. Any resulting capital gain may be eliminated or reduced by the principal residence exemption.

CRA referred to their policy not to apply the deemed disposition provision in certain cases where a principal residence is also used to generate income but opined that the creation of a second housing unit as required for the provincial program would be a structural change, and therefore the deemed disposition provision would apply.

CRA confirmed that an election to avoid the deemed disposition could be filed. In this case, the deemed disposition would be avoided; however, CCA could not be claimed against the rental income.

Multigenerational home renovation tax credit (MHRTC)

The MHRTC provides tax credits for homeowners who renovate their homes to create a secondary unit for a qualifying individual (a senior or an adult eligible for the disability tax credit). The secondary unit must be self-contained with a private entrance, kitchen, bathroom, and sleeping area and must meet local standards to qualify as a secondary unit.

Change of use

Whether a deemed disposition occurs upon partial change in use is a question of fact. Since the MHRTC does not require the secondary unit to generate rental income, and the unit would be used by a family member, there may not have been a change in use to gaining or producing income (from personal use). As such, the partial change in use rules may not apply.

Principal residence exemption (PRE) for secondary suites

Both interpretations discussed how secondary suites affect the PRE. If two units are each self-contained, each with its own entrance, kitchen and bathroom and can be ordinarily inhabited separate from each other (that is, without access to the other unit), CRA’s view is that they will generally be considered separate housing units for the PRE. Where it can be demonstrated that the two units are sufficiently integrated (both structurally and in their usage) and are being used for the exclusive use and enjoyment of the taxpayer and their family (that is, the two units are integrated to function as one single-family residence), it is possible that they would be a single housing unit.

In discussing the provincial program, CRA noted that the secondary suite would be a separate housing unit for PRE purposes. Even if it is part of the same structure or lot as the main home, only one unit could be designated as the principal residence each year. Since the suite must be rented to a non-family member to qualify for the program, it would not typically be inhabited by the homeowner, so it would likely not qualify for the PRE. However, the main residence could still qualify if it meets the usual requirements.

In the context of the MHRTC, CRA indicated that a taxpayer who constructs a secondary unit that is a self-contained housing unit eligible for the MHRTC would generally be considered to have two separate housing units. However, where the second unit is used for personal purposes and the taxpayer can demonstrate that the two units are being used together and functioning as a single unit, it may be possible to treat the property as a single unit eligible for the PRE. The determination of whether there are two self-contained housing units would be fact-dependent, as discussed above. Key factors would include the extent of the integration between the units and whether they share legal titles, mailing addresses, entrance doors and utility accounts.

Adding a secondary unit to a home may trigger a taxable disposition or limit the principal residence exemption. Assess tax implications before starting renovations.

U.S. Tariffs and Canada’s Response: Uncertainty Complications Tariff Mitigation

Posted on by RSM US LLP

Executive summary

The ongoing tariff dispute between the U.S. and Canada has led to significant measures from both countries. As the situation remains dynamic, key strategies for Canadian businesses to manage these risks include using bonded warehouses, transfer pricing, tariff engineering, and diversifying supply chains.

 

U.S. tariffs on most Canadian goods—and Canada’s reciprocal measures—went into effect March 4 following a month-long delay. While tariffs on some Canadian goods were subsequently paused, tremendous trade uncertainty remains on both sides of the border.

The tariff situation continues to evolve as the U.S. administration eyes new products for protective tariffs and Canada rolls out its response at the federal and provincial levels.

Although the ongoing uncertainty makes planning tariff mitigation more complicated, the following strategies are still available for middle-market companies:

  • Bonded warehouses, foreign/free trade zones, and temporary import bonds. These mechanisms allow importers who meet certain requirements, such as limitations on work performed on the goods, to delay tariffs until the goods are distributed into the local market—or bypass tariffs where the goods are exported.
  • Transfer pricing. In related party transactions, transfer pricing ensures the price of the good is equivalent to the price in an arm’s length transaction. Companies should revisit their transfer pricing strategies to ensure the lowest defensible price is used.
  • Tariff engineering. This involves changes to the manufacturing process, manufacturing locations, and supply chain to change the classification of the goods.
  • Diversifying the supply chain and customers. The U.S. is the top export destination for numerous Canadian products. The current tariffs underscore the importance of diversification for Canadian businesses to limit the negative impacts of tariffs.
  • Participate in the comment period. Those operating in industries that could be affected by future tariffs—such as manufacturing, real estate and consumer products—could consider participating in the consultation.

You can read more about the ongoing tariff dispute below. The measures detailed below were accurate as of March 6 and are subject to change.

U.S. tariffs on Canada

The following tariffs impacting goods originating from Canada have been confirmed by executive order or official statement from the White House.

The term “CUSMA goods” refers to goods which meet the Canada-United States-Mexico Free Trade Agreement (CUSMA) rules of origin for goods originating in the territory of Canada, the U.S., and Mexico. Generally speaking, CUSMA goods will be wholly obtained or produced in North America, and/or meet requirements on regional content, processing or changes in tariff classification outlined in the CUSMA.

Scheduled effective date

Amount

Affected goods

March 4 – March 6

10%

Energy and energy resources[1]

March 4 – March 6

25%

All, except energy and energy resources

March 7

10%

Energy, energy resources, and potash which are not CUSMA goods

March 7

25%

All non-CUSMA goods not captured in the 10% tariff.

March 12

25%

Steel and aluminium products and derivatives
 

Products whose value does not exceed US $800 will qualify for the de minimis exemption to the tariffs. The exception is only a temporary reprieve for goods subject to the March 7 tariffs as it will be removed once systems are in place to collect tariffs on these low-value imports.

U.S. President Donald Trump has also indicated the administration is considering the following additional tariffs. The details, including countries impacted, are not publicly finalized.

Scheduled effective date

Details

April 2

Reciprocal tariffs

April 2

Automobiles and agricultural products

Unknown

Approximately 25% tariff on semiconductors and pharmaceuticals

Along with the previously announced tariffs, the U.S. has indicated it is conducting reviews into other areas of concern:

  • April 1, 2025: Report on impact and recommendations regarding CUSMA.
  • August 12, 2025: Recommendations on reciprocal tariffs to respond to tariff and non-tariff measures, including value-added taxes believed to injure U.S. interests.
  • Nov. 22, 2025: Report on copper and copper products including potential recommendations for tariffs or export controls.
  • Nov. 26, 2025: Report on lumber and timber including potential recommendations for tariffs or export controls.
  • Unknown: Response to digital services taxes introduced by several countries, including Canada, on recommendation by the Organization for Economic Co-operation and Development (OECD).

Canada’s tariff response

Prime Minister Justin Trudeau confirmed on March 4 that Canada would implement a two-phase tariff response originally announced on Feb. 1. Trudeau added he would work with the provinces on further measures and look for other ways to support affected Canadians. One potential option he suggested was expansion and additional flexibility for employment insurance (EI).

Innovation Minister François-Philippe Champagne announced the guidance to the Investment Canada Act will be updated to require consideration of Canada’s economic security in allowing foreign acquisitions of or mergers with Canadian companies.

Along with initiating disputes before the World Trade Organization and using the CUSMA dispute resolution measures, Canada implemented its two-phase tariff response. A 25%t tariff was imposed on a subset of goods originating from the U.S. on March 4 and is scheduled to extend to a further list of goods following a 21-day consultation period. This tariff applies to both commercial and personal-use goods.

The following is a non-exhaustive and high-level list of impacted goods:

Initial group of goods

  • Food and drink products including dairy products, confectionaries, fruits and vegetables, beverages (alcoholic and non-alcoholic), cereals and spices.
  • Hygiene and beauty products, including perfumes, deodorants, soap and shavers.
  • Home furniture, décor, and home appliances.
  • Pneumatic tires, motorcycles, and unmanned aircraft.
  • Personal use bags (including handbags, suitcases).
  • Clothing, footwear, and accessories.
  • Products for outdoor activities (such as tents, sails, and life jackets).
  • Wood and wood products.
  • Paper and cardboard products (e.g. toilet paper, notebooks, and boxes).
  • Plastic packaging materials.
  • Tools.
  • Firearms and related products.
  • Tobacco and related products.

Extended group of goods

  • Live animals, fish, crustaceans, invertebrates, insects, and birds and the products thereof.
  • Flowers and trees, including their seeds/bulbs and the products thereof (e.g. bark, chocolate, and teas).
  • Vegetables, fruits, berries, cereals, mushrooms, and nuts and the products thereof (including oils, waffles, beverages, and pasta).
  • Minerals, clay, stones, ores, ceramic, metals, glass, and rocks (including products derived from coal).
  • Mineral or chemical fertilizers.
  • Electrical energy.
  • Polymers, resins, cellulose, and asbestos products.
  • Items used in artistic and athletic activities, as well as some toys, video game consoles, and collector items.
  • Apparel, accessories hygiene, cleaning products, home goods, and home appliances.
  • Machinery for construction, agriculture, printing, and additive manufacturing.
  • Certain vehicles, trailers, tankers, and boats.
  • Various electronic resistors, insulators, and semiconductor devices.
  • Various screws, bolts, springs, nuts, magnets, and batteries.

These tariffs will not apply to:

  • Certain equipment in the production of any vehicle, machine, or appliance, including original equipment manufacturer tires.
  • Goods made in the U.S. entering Canada for repair.
  • With certain exceptions, goods classified under Chapter 98 and 99 of the Customs Tariff. These chapters include special classification categories that consider factors such as use of goods (for example, foreign-based containers or trailers used in the international commercial transportation of goods).

Importers will be able to make use of Canada’s duties relief and duty drawback programs (subject to CUSMA) to bypass tariffs or receive a refund of tariffs on previously imported goods which are exported from Canada.

Provincial responses to U.S. measures

Many Canadian provinces are introducing their own responses to U.S. tariffs using measures within their jurisdiction—while some premiers are pushing to lower barriers to interprovincial trade.

Outlined below are measures from the provincial governments of Alberta, British Columbia, Quebec, and Ontario. 

Alberta

Alberta announced it will no longer be purchasing alcohol or video lottery terminals from the U.S., nor will government entities—both provincial and municipal—be making purchases of goods and services from the U.S.

British Columbia

B.C. announced that:

  • Its liquor stores will no longer sell products from Republican-led states,
  • Canadian businesses will have priority in governmental procurement decisions; and,
  • It will introduce legislation to apply tolls to commercial trucks transiting through the province headed to Alaska.

B.C. Premier David Eby also indicated he’s looking to introduce support for affected businesses and individuals but did not provide details.

Ontario

The province-run LCBO has removed U.S. alcohol from its shelves, and U.S. companies will no longer be considered in government procurement and infrastructure contracts. A 25% export tariff on electricity headed to Michigan, New York, and Minnesota will apply as of March 10. Ontario Premier Doug Ford indicated he is considering other measures as well.

Quebec

Quebec’s government asked the province-run SAQ to no longer sell or supply U.S. alcohol. The province will also impose a penalty of 25% on U.S. companies bidding on government contracts without an existing presence in Quebec. Quebec said it will support affected domestic businesses by allowing companies to qualify for up to $50 million in liquidity loans with a maximum term of seven years.

 

[1] Includes crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, the kinetic movement of flowing water and critical minerals

This article was written by Cassandra Knapman and originally appeared on 2025-03-06. Reprinted with permission from RSM Canada LLP.
© 2024 RSM Canada LLP. All rights reserved. https://rsmcanada.com/insights/services/business-tax-insights/us-tariffs-and-canadas-response.html

RSM Canada LLP is a limited liability partnership that provides public accounting services and is the Canadian member firm of RSM International, a global network of independent assurance, tax and consulting firms. RSM Canada Consulting LP is a limited partnership that provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International. The member firms of RSM International collaborate to provide services to global clients but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmcanada.com/about for more information regarding RSM Canada and RSM International.

The information contained herein is general in nature and based on authorities that are subject to change. RSM Canada LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM Canada LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

How to Make a Payment with Canada Revenue Agency for Your Business

Posted on by Edixon

Online Banking Payments

Make a payment to the CRA through online banking, the same way you pay your phone or hydro bill.

  • Sign in to your financial institution’s online business banking service.
  • Under “Add a payee,” look for an option such as:
    • Federal – Corporation Tax Payments – TXINS
    • Federal – GST/HST Payment – GST-P (GST-P)
    • Federal Payroll Deductions – Regular/Quarterly – EMPTX – (PD7A)
    • Federal Payroll Deductions – Threshold 1 – EMPTX – (PD7A)
    • Federal Payroll Deductions – Threshold 2 – EMPTX – (PD7A)
    • Federal – Canada emergency wage subsidy repayment
    • Luxury Tax
    • Underused Housing Tax (UHT)
  • Enter your 15 digit business number as your CRA account number.

You are responsible for any fees that may be charged by your financial institution.

Debit Card Payments Via ‘My Payment’

Make a payment with your Visa® Debit,  or Debit MasterCard® . 

My Payment is an electronic payment service offered by the CRA that uses Visa® Debit, Debit MasterCard® for businesses to make payments directly to the CRA using their bank access cards.  The CRA does not charge a fee for using the My Payment service. Credit Cards not accepted with this service.

To use My Payment you need a card with a Visa Debit logo or Debit MasterCard logo from a participating Canadian financial institution.

Before you start ask your financial institution about your daily or weekly transaction limit and any fees for making online payments. The CRA does not charge a fee for using this service.

CRA’s My Payment Webpage

Pay Through a Canadian Financial Institution

To make a payment at your Canadian financial institution, you will need a personalized remittance voucher. Financial institutions will not accept photocopies of remittance vouchers or payment forms.

You can make a payment in foreign funds.  The exchange rate you receive for converting the payment to Canadian dollars is determined by the financial institution handling your transaction on that day. You are responsible for any fees that are incurred.

Arrangements will need to be made with your financial institution if you are making a payment of more than $25 million.

Be sure to provide accurate information to help the CRA apply your payment to the intended account.  A personalized remittance voucher will help CRA apply your payment properly.  You can request personalized remittance vouchers online or by phone.

Mailing Your Payment

The government released legislation, effective January 1, 2024, that any tax payment or remittance made by a corporation to the CRA exceeding $10,000 must be done through electronic means.

If your tax payments exceed $10,000, you should no longer make these payments using a cheque.

It is highly encouraged to remit payments to the CRA electronically even if the amount is less than $10,000 as electronic payments are processed quicker. This will also significantly reduce the risk of lost or misapplied payments. Furthermore, it is usually far easier and faster for the CRA to trace a lost or misapplied electronic payment than a cheque mailed to the CRA.

If you still wish to send a cheque or money order, make it payable to the Receiver General for Canada and include your remittance voucher. Note: Payment is considered received on the date CRA receives the cheque, not the postmark date.

Mailing address:
Canada Revenue Agency
PO Box 3800 STN A
Sudbury ON P3A 0C3

Payment by Pre-Authorized Debit (PAD)

Set up a pre-authorized debit agreement and eliminate the need for postdated cheques.

Pre-authorized debit (PAD) is a secure, online, self-service payment option for individuals and businesses. This option lets you set the payment amount that you authorize the CRA to withdraw from your Canadian chequing account to pay your taxes on a date, or dates, of your choosing.

Due to the processes that must take place between the CRA and the financial institution, the taxpayer’s selected payment date must be at least 5-business days from the date their PAD agreement is created or managed.

See Federal holidays for a list of non-business days.

There is a ‘pay by pre-authorized debit’ option through GST/HST netfile available for an amount owing.

A PAD agreement can only be set up online, not over the phone.

Steps to create a pre-authorized debit agreement for businesses

To create a PAD you have to be registered for My Business Account.  Click on ‘CRA register’ or ‘Continue to Sign-In Partner’ and complete the steps.  Once completed, your official access code will be sent to you by mail.  Once you enter the access code into My Business Account you will have full access, which allows you to view, create, modify, cancel, or skip a payment.

This option is not designed to be used frequently due to the limitations on payments and the fees involved.

Steps to create a pre-authorized debit agreement for individuals

To create a PAD, you must to be registered for My Account. Once signed in:

  • Select the ‘Proceed to pay’ button and select the ‘Pay later’ option to create a PAD agreement.
  • Access ‘Manage pre-authorized debit’ under the Related services within the Accounts and payments section to view, modify, cancel, or skip a payment.
  • A PAD agreement can also be created within MyCRA, for an amount owing, by selecting the ‘Proceed to pay’ button and the ‘Pay later’ option. Your credentials are the same as in My Account.

Credit Card Payments via Third-Party Service Providers

You can make a payment with a credit card, debit card, PayPal, or Interac e-Transfer by using a third-party service provider.

Different service providers offer different payment methods. 

The third-party service provider will send your business or individual payment and remittance details online to the CRA for you.  

Ensure that you set up your payment well in advance of your payment’s due date as payment delivery is not immediate, and is determined by the third-party service provider that is used.

Note: Third-party service providers charge a fee for their services. Click here for a full list of third-party service providers.  

Payments via Wire Transfer for Non-Residents

Non-residents who do not have a Canadian bank account can make payments to the CRA by wire transfer.

Wire transfers for submitting your non-resident GST/HST security deposit are not available at this time.

What you need to know

All wire transfers must be in Canadian dollars.

Your financial institution may have standard charges that apply to wire transfer payments.  Make sure that your financial institution does not deduct the wire transfer fee from the total payment amount due as this will result in an underpayment.

Wire details

You will need the following information to transfer funds to the CRA’s account:

Name of banking institution: The Bank of Nova Scotia
4715 Tahoe Blvd
Mississauga, ON
Canada L4W 0B4
SWIFT: NOSCCATT
Bank number: 002
Transit number: 47696
Canada Clearing Code/Routing Code:  //CC000247696
Beneficiary name: Receiver General of Canada
Beneficiary account number: 476962363410
Beneficiary address:  11 Laurier Street
Gatineau, Quebec K1A 0S5
Description field: Authorization number: 12226367 + your CRA account number and details
Charges field: “OUR”

To avoid processing delays include the following information with your wire transfer:

For Businesses:

  • non-resident account number or business number
  • business name
  • period end date
  • fiscal year
  • telephone number
  • return/remittance
    • Provide a copy of your tax remittance or GST/HST return/remittance by fax to the CRA:
    • Attention: Revenue Processing Section
    • Fax: 204-983-0924
    • Provide the amount paid, the date paid and the confirmation number if available

Avoid late fees

You are responsible for making sure the CRA receives your payment by the payment due date. If you are using a third-party service provider, please ensure that you clearly understand the terms and conditions of the services that you are using.

Vacant Unit Tax Regime – Hamilton Homeowners

Posted on by dflanagan

The city of Hamilton will participate in the Vacant Unit Tax regime for 2024 (similar to Ottawa and Toronto) whereby every Hamilton residential homeowner will be required to file the declaration form. The deadline is April 30, 2025.

What Happens If I Don’t File?

Failure to file the form will result in the City considering the property to be vacant, and the Vacant Unit Tax will apply.

The Vacant Unit Tax is calculated at a rate of 1% of the property’s current assessed value and will be included in the final property tax bill that gets mailed out in June 2025.

What Are the Penalties?

If the form is not filed by the deadline, a $250 late fee will apply.

The penalty for non-payment is 1.25% immediately, plus 1.25% interest per month.

How Do I File the Form?

Please see Vacant Unit Tax | City of Hamilton for further information, as well as details on how to file the form.

For Further Assistance

For questions regarding the Vacant Unit Housing Tax or for help with completing the form, you can contact the City of Hamilton by phone at 905-546-2573 or by email at VacantUnitTax@hamilton.ca.

My Business Account: No More Paper Mail

Posted on by ssiconolfi

In the Spring of 2025, CRA will change the default method of correspondence for most businesses to online only.  This means that most businesses will receive their notices of assessment, letters, forms, statements, and other documents from CRA through My Business Account rather than by traditional mail. Notifications that new mail is available online will be sent to the email address(es) registered on My Business Account. Business correspondence will be presumed to be received on the date that it is posted in My Business Account.

This change will apply to all of the following:

  • existing businesses registered for My Business Account;
  • businesses who have a representative that access taxpayer information through Represent a Client; and
  • all entities that register for a new business number or program account.

CRA recommended taxpayers sign in to My Business Account to ensure the email address on file is current. There can be up to three email addresses for each program account.

Owners of new businesses should ensure to register for My Business Account and provide a valid email address to ensure that they do not miss notifications or correspondence from CRA.

Impacted businesses can continue to receive paper mail by opting out of the online default by taking one of the following two actions starting in May 2025:

  • selecting paper mail as the delivery option in My Business Account; or
  • filling out and mailing Form RC681 – Request to Activate Paper Mail for Business to CRA.

No information was provided on the required lead time to avoid the transition and continue to receive traditional mail.

This change will not apply to the following who will continue to receive traditional mail:

  • existing businesses not registered for My Business Account through the business owner or an authorized representative (via Represent a Client);
  • charities, unless they sign up to receive online mail; and
  • non-resident businesses that do not have access to My Business Account through their representative or an owner who is a Canadian resident.

Ensure that your email address listed in My Business Account is up to date. Consider opting out of electronic only communications in May 2025, if that is your preference.

Navigating Capital Gains: Compliance Updates and Tax Planning Strategies

Posted on by RSM US LLP
Executive summary

Budget 2024 proposed an increase in the capital gains inclusion rate (CGIR) from 1/2 to 2/3. However, with the recent deferral to January 1, 2026, coupled with the slow-moving legislative process and upcoming federal elections, taxpayers face significant uncertainty. This makes proactive tax planning more essential than ever.

In response to this uncertainty, the Canada Revenue Agency (CRA) has provided updates and relief measures for taxpayers, including maintaining specific reporting periods for capital gains, waiving late-filing penalties and interest until mid-2025, and extending deadlines for filing information returns.

Taxpayers should explore various strategies to navigate these changes, such as realizing gains early, leveraging exemptions, and adjusting investment strategies to optimize their tax position. Staying informed and adaptable is crucial as legislative developments unfold.

 
Navigating capital gains: Compliance updates and tax planning strategies

The proposed changes to the capital gains inclusion rate (CGIR) continue to create uncertainty for taxpayers and businesses alike. While the Department of Finance (DOF) has deferred the implementation of increased CGIR from 1/2 to 2/3 to Jan. 1, 2026, no further legislative updates have been introduced, leaving taxpayers in a position of ambiguity.

Current state of affairs

Since its announcement in the 2024 federal budget, the implementation of increased CGIR has been moving at a slow pace, leading to speculation about whether the increase will be implemented as planned or postponed further. With Parliament set to resume soon, there is still no guarantee that clarity will come swiftly. Given the upcoming federal elections and potential shifts in government policy, it is possible that there will be no definitive answer for several months. In this evolving landscape, taxpayers must stay proactive in their planning, assessing potential outcomes and considering various strategies to mitigate risks and optimize their tax positions.

Recent CRA announcements and compliance updates for 2024 tax returns

The Canada Revenue Agency (CRA) has recently provided clarifications and relief measures for taxpayers and tax preparers dealing with the ongoing uncertainty surrounding capital gains and other compliance requirements:

Reporting capital gains (losses) on returns

The CRA is maintaining Period 1 (pre-June 25, 2024) and Period 2 (on or after June 25, 2024) reporting on T1 and T3 schedules to align with tax slips already issued or filed, despite reverting to the current CGIR of 1/2.

The updated Schedule 3 for 2024 T1 tax returns maintains a breakdown of dispositions into pre- and post-June 25, 2024, periods to align with tax slip disclosures. Therefore, while issuing the tax slips, the taxpayers must still bifurcate the capital gains into both periods and hence, must be reported accordingly on the T1 and T3 income tax returns. This bifurcation is important from a lifetime capital gains exemption (LCGE) perspective, as only dispositions on or after June 25, 2024, are eligible for the enhanced LCGE of $1,250,000 (up from $1,016,836).

Furthermore, the CRA clarified that taxpayers should not use lines 12701 and 25999, even though they remain on the return, as the 1/2 CGIR applies for all of 2024.

Reporting employee stock options deductions

To mirror the increased CGIR, the government also proposed reducing the employee stock options plan (ESOP) deduction from 1/2 to 1/3. However, with the deferral in the implementation of increased CGIR, the CRA clarified that if the taxpayer’s T4 slip includes amounts in boxes 91 and 92 for ESOP deductions after June 24, 2024, at a 1/3 rate, they will need to enter the amounts from the T4 slip on line 24900 of the T1 return. In addition, taxpayers must claim the additional ESOP deduction on line 24901 in order to claim a total deduction of up to 1/2 of the ESOP benefits received in the year. Taxpayers can use the Federal Worksheet to calculate the additional ESOP deduction.

Capital gains penalty and interest relief

The CRA has clarified that late-filing penalties and arrears interest will be waived until June 2, 2025, for impacted T1 individual filers and until May 1, 2025, for impacted T3 trust filers. In addition, the CRA also clarified that this relief applies to both the filing of T3 slips and the T3 income tax return.

Importantly, however, the CRA has revoked relief for corporations with a filing due date on or before March 3, 2025, that was previously announced. The current CRA website for corporate income tax returns no longer mentions corporations being eligible for the relief when compared to an archived version of the website from January 31, 2025.

Relief on filing information returns

The CRA announced that late-filing penalties for information returns (due February 28, 2025) will be waived if filed by March 7, 2025. For T4PS and T5008 slips, the relief has been extended to March 17, 2025, to allow taxpayers additional time to recalculate the amounts due to the deferred implementation of increased CGIR. However, Revenue Quebec has not announced any such relief yet.

In addition, CRA clarified that in case an information return is filed after the extended due date, it will incur a late filing penalty based on its original due date and not the extended due date. Therefore, taxpayers should make all efforts to ensure the information return is filed by the extended due date.

Planning opportunities amid uncertainty

Given the uncertainty surrounding the CGIR, taxpayers who defer planning in anticipation of a final conclusion may find themselves in a disadvantageous position. If the government ultimately moves forward with the proposed increase, those who did not act proactively may face higher tax liabilities than if they had engaged in early planning. Therefore, taxpayers should assess their financial situations and engage in proactive tax planning to optimize their tax positions. Some key considerations are listed below:

Realization of capital gains

The deferral provides additional time for taxpayers to reconsider their tax planning strategies. Taxpayers can use this period to review their investment portfolio to identify any assets with significant unrealized capital gain and decide whether it makes sense to realize gains before the new rate takes effect on January 1, 2026. This could help taxpayers to take advantage of the current lower CGIR. However, this strategy should be weighed against individual circumstances, market conditions and potential future legislative changes.

Utilizing the exemptions

While the implementation of increased CGIR has been deferred, various exemptions such as the principal residence exemption (PRE), the enhanced LCGE and the Canadian entrepreneurs’ incentive (CEI) are intact. Therefore, the taxpayers can access these exemptions to mitigate the taxes. The proposed increase in the LCGE to $1.25 million for qualified small business corporation shares and farming and fishing property provides a valuable tax planning opportunity.  On the other hand, the newly introduced CEI lowers the inclusion rate for certain business owners selling their businesses. Individuals considering the sale of eligible assets should evaluate whether they can take advantage of these exemptions before any further tax policy shifts occur.

Income-splitting

Taxpayers can explore income-splitting strategies with family members in lower tax brackets to distribute capital gains more tax-efficiently. This may involve gifting or selling assets to family members. However, taxpayers need to stay mindful of attribution rules, tax on split income rules and other negative tax considerations that may arise.

Structuring and deferring gains

Taxpayers who are reluctant to realize gains may explore structuring options to defer capital gains or spread them over multiple years. Techniques such as estate freezes, the use of trusts, and corporate reorganizations may help mitigate the tax impact of a future CGIR increase.

Reviewing and adjusting investment strategies

Investors should re-evaluate their portfolios in light of the proposed changes and consider tax-efficient investment options in tax-sheltered accounts such as tax-free savings accounts (TFSAs) and registered retirement savings plans (RRSPs), to minimize taxable gains. Taxpayers must also diversify their investment portfolios to spread risk and potentially reduce the impact of higher CGIR.

Revisiting estate plans

The proposed increase to the CGIR will lead to higher taxes on death arising due to the deemed disposition of assets at fair market value (FMV). Hence, individuals should revisit existing estate plans in light of the higher CGIR to account for the increased tax liability upon death. In addition, taxpayers who have implemented an estate freeze should re-evaluate its effectiveness.

Transfer of assets to individuals

The draft rules provided safe harbour provisions for individuals to protect capital gains below the annual threshold of $250,000 from the higher CGIR. Corporations holding assets (e.g., marketable securities, real estate and/or shares) may consider transferring such assets to their shareholders to crystallize accrued capital gains before the proposed effective date. By doing so, shareholders would be able to shelter future capital gains of up to $250,000 when they eventually sell the assets.

Section 85 rollovers

Taxpayers can crystallize existing accrued capital gains by electing a rollover under section 85 of the Income Tax Act, thereby potentially benefiting from the lower CGIR.

Generally, under subsection 85(1) rollovers, a taxpayer can transfer eligible property to a taxable Canadian corporation where an election is filed. The taxpayer has the option to elect an amount to be deemed as proceeds of disposition for each transferred property. This elected amount may equal or exceed the adjusted cost base (ACB) or undepreciated capital cost (UCC) of the property but must not exceed its FMV.

Since this election is due when the earliest tax return for that particular year is due, taxpayers could elect at the property’s maximum FMV to crystallize the capital gains at a lower rate if the legislation proceeds as planned. Alternatively, taxpayers have the option to elect the transfer to occur at the ACB/UCC of the property, facilitating a fully tax-deferred transfer without triggering capital gains at the time of transfer. This strategy provides the ability and time to the taxpayer to elect a partial or no capital gain depending on where the legislation ends up.

Deferring capital losses carryforward

As the value of net capital losses from previous years will be adjusted to align with the applicable inclusion rate, taxpayers can consider deferring the capital losses carried forward because they will be more valuable when used against the capital gains realized at a higher rate.

Looking ahead: What to expect?

As Parliament resumes and the political landscape unfolds, taxpayers should closely monitor developments. The federal election will play a crucial role in determining the fate of the proposed CGIR increase. A change in government could lead to amendments, delays or even the complete withdrawal of the proposal. Furthermore, global economic conditions, including tariffs, trade tensions, inflation rates, and economic growth in major economies, can influence Canada’s economic stability and policy decisions. Therefore, predicting the final form of the CGIR becomes complex.

Regardless of the outcome, taxpayers must remain adaptable. Waiting until the last minute to make critical tax decisions could result in lost opportunities or higher tax liabilities. The road ahead remains uncertain, but taxpayers can turn ambiguity into opportunity with the right planning.

This article was written by Daniel Mahne, Chetna Thapar and originally appeared on 2025-02-26. Reprinted with permission from RSM Canada LLP.
© 2024 RSM Canada LLP. All rights reserved. https://rsmcanada.com/insights/tax-alerts/2025/navigating-capital-gains-compliance-updates-tax-planning-strategies.html

RSM Canada LLP is a limited liability partnership that provides public accounting services and is the Canadian member firm of RSM International, a global network of independent assurance, tax and consulting firms. RSM Canada Consulting LP is a limited partnership that provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International. The member firms of RSM International collaborate to provide services to global clients but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmcanada.com/about for more information regarding RSM Canada and RSM International.

The information contained herein is general in nature and based on authorities that are subject to change. RSM Canada LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM Canada LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

GST/HST Tax Holiday: Rebate Applications

Posted on by dflanagan

For the December 14, 2024, to February 15, 2025, period, certain items normally subject to GST/HST should not have GST/HST applied at the point of sale. Businesses selling these goods can still claim input tax credits for the GST/HST they paid on inputs acquired to supply the good, as they are zero-rated.

The types of items covered by this temporary measure include (but are not limited to):

  • children’s clothing, footwear, diapers, and car seats;
  • select children’s toys, jigsaw puzzles, and video games/devices;
  • printed newspapers and books;
  • Christmas and similar decorative trees; and
  • various foods and drinks (including some alcoholic drinks), including but not limited to those provided at establishments like restaurants.

If GST/HST is mistakenly charged on the purchase of one of these goods, the purchaser can request a refund directly from the supplier.

If the supplier does not provide a refund or is no longer in business, the purchaser can apply to CRA for a GST/HST rebate (minimum claim is $2) using Form GST189: Rebate under reason code 1C, “Amounts paid in error.” The application must be filed within two years after the date the amount was paid in error. CRA has suggested that a purchaser consolidate all their claims (including associated receipts) and submit a single rebate application after the GST/HST break period is over.

Ensure to keep receipts for purchases where GST/HST was charged improperly. Multiple claims can be included in a single rebate submission.

Trump’s Steel and Aluminum Tariffs Turn Uncertainty Into Concern for Canada

Posted on by RSM US LLP

It took less than a week for the uneasy pause in trade tensions between Canada and the U.S. to reignite after U.S. President Donald Trump announced steep tariffs on steel and aluminum imports.

The 25% tariff, which is set to take effect on March 12, includes products from Canada — the largest source of U.S. steel and aluminum imports.

Although the tariffs apply to imports from all countries, Canada will be the most impacted by far as the U.S. imports a larger amount of steel and aluminum from Canada than any other country. Of note, aluminum imports from Canada are greater than the next 10 countries combined.

The tariff announcement also overrides current trade agreements the U.S. has with Canada, Mexico, the UK, Japan, and others.

As Canada considers its response, these tariffs — combined with the currently paused executive order targetting a broad range of Canadian goods — would severely impact Canada’s manufacturing sector.

This isn’t the first time Trump has levied tariffs on Canadian steel and aluminum. During his first administration in 2018 amid free-trade negotiations, U.S. tariffs on Canadian products — as well as Canada’s reciprocal tariffs — were in place for just over a year.

The economic hit appears confined within the manufacturing sector thus far. The loonie stayed steady, and if there are exemptions like in 2018 – which remains unclear at this moment – then the overall hit on Canada’s growth and inflation would be limited. U.S. steel imports by country

U.S. aluminum imports by country

Manufacturing sector vulnerable

Manufacturing is the sector most vulnerable to tariffs due to the deep integration of the Canada-U.S.-Mexico supply chain. A significant 39.4% (641,000 jobs) of Canadian manufacturing jobs (641,000) rely on U.S. demand.

Canada’s 90,000 manufacturers contribute nearly 10% of the country’s gross domestic product (GDP), generate 1.9 million jobs, contribute to one-quarter of Canada’s business research and development spending and account for 60% of Canada’s exports according to the Canadian Association of Manufacturers and Exporters.

Canada’s manufacturing sector has faced multiple challenges and economic pressures in recent years, including the pandemic shock, supply chain disruptions, labour shortages, rising costs, and rising financing costs. The sector gradually began to recover as interest rates started to drop and the labour market stabilized. The manufacturing purchasing managers’ index (PMI) even signalled a return to growth at the end of 2024 after a prolonged period of contraction.

The Manufacturing Purchasing Managers’ Index (PMI) signalled a return to growth at the end of 2024 after a prolonged period of contraction.

The disruption from Trump’s latest order would stall the progress made by the overall manufacturing sector and disproportionately affect Canada’s base metals production and processing industry.

Despite trade policy uncertainty, Canada’s manufacturing sector added a staggering 33,100 out of 76,000 total jobs gained in January. This surge, the largest since the pandemic-related wide swings in 2020, signals underlying optimism and is notable due to the struggles of goods-producing sectors in the last five years.

The takeaway

The only certainty with current U.S.-Canada tariff tensions remains uncertainty, so business leaders should keep a careful eye on the latest developments and act judiciously.

Ahead of the expected March 12 implementation, manufacturers could consider taking these proactive steps:

  • Understanding your supply chains and sourcing practices, identifying country-specific risks and vendor concentration vulnerabilities, assessing full landed cost of imported goods including tariffs. Explore alternative sourcing strategies and evaluate associated costs.
  • Assessing tariff planning strategies, including advancing deliveries ahead of the anticipated tariffs, utilizing bonded warehouses, foreign trade zones, and duty drawbacks programs.
  • Exploring expansion into new global markets, diversifying revenue streams, and distribution channels.
  • Modelling pricing strategies to determine the feasibility of passing additional costs to customers, as well as negotiating long-term contracts and cost-sharing arrangements with vendors.
  • Evaluating long-term shifts in supply chains, production and distribution footprint to be prepared for rapid changes, tariff increases, and other trade risks.
  • Optimizing operations by identifying opportunities for increased efficiency, cost reduction, raising workforce productivity, enhancing profitability throughout the value chain, and prioritizing investments that generate long-term values and deliver high returns on capital outlays.

This article was written by Irina Im, Tu Nguyen and originally appeared on 2025-02-11. Reprinted with permission from RSM Canada LLP.
© 2024 RSM Canada LLP. All rights reserved. https://realeconomy.rsmus.com/trump-steel-aluminum-tariffs-canada

RSM Canada LLP is a limited liability partnership that provides public accounting services and is the Canadian member firm of RSM International, a global network of independent assurance, tax and consulting firms. RSM Canada Consulting LP is a limited partnership that provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International. The member firms of RSM International collaborate to provide services to global clients but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmcanada.com/about for more information regarding RSM Canada and RSM International.

Even with Pause, Trump’s Tariffs and Canada’s Response Establish Volatile New Economic Reality

Posted on by RSM US LLP

After a weekend that saw U.S. President Donald Trump impose steep tariffs on Canadian goods and Prime Minister Justin Trudeau put forward retaliatory measures, the widely feared tariff war appears on hold after meetings between the two leaders on Monday.

Instead of taking effect Tuesday, implementation of tariffs will be paused by 30 days after Canada made additional commitments to invest in border security.

While businesses and consumers may welcome this reprieve, the back-and-forth between the longtime trading partners laid bare Canada’s economic vulnerability amid ongoing political volatility.

The U.S. tariffs set to take effect in 30 days include an additional 25% tariff on nearly all Canadian goods—with a 10% tariff on energy products.

In response, Canada’s retaliatory measures included a 25% tariff on $155 billion worth of goods from the U.S. The first phase would include tariffs on $30 billion in U.S. goods; the second phase would take effect 21 days after.

The U.S. also introduced a 10% tariff on all products from China. While Trump initially announced a 25% tariff on all goods from Mexico, its implementation was delayed for a month after meeting with Mexican President Claudia Sheinbaum.

Canada, Mexico, and China comprise more than 40% of all U.S. imports.

If the tariffs take effect after the pause, they will affect all countries involved—including pushing Canada into a recession, adding inflationary pressures, and leading to job losses. This comes after Canada managed to lower inflation to the Bank of Canada’s target last year without tipping the economy into a recession.

Despite the intercession, Canada should consider re-evaluating its trade relationships. Strategies that could address this include expanding and strengthening trade relations with other countries and removing interprovincial trade barriers to allow more seamless domestic trade.

Although there will be increased costs in the short-to-medium term, diversification to de-risk is a lesson from the COVID-19 pandemic that can prove useful now.

This chart shows U.S. imports by country

Dire economic impacts

U.S. tariffs and Canada’s retaliation would lead to a 2% reduction in the Canadian economy, down from a projected growth rate of 1.8% this year.

The measures by both sides could also lift inflation from the current 2% to a 2.7% headline number as Canadian consumers end up bearing some of the increased costs from tariffs.

The depreciation of the Canadian dollar could mitigate the prices of exports for U.S. importers, but this exacerbates the pain for Canadian businesses and consumers.

Industries that are highly integrated across borders, including auto manufacturing and even agriculture, could come to a standstill rapidly if tariffs are implemented.

Job losses should be expected across Canadian industries, from manufacturing to tourism to transportation. Higher prices decrease demand, which means aggregate demand for goods across the U.S. and Canada would drop, leading to fewer jobs.

For Canadian households, this means an increase in prices of multiple consumer goods like groceries, appliances, and especially vehicles.

Prices of perishable goods such as fruits and vegetables are likely to jump quickly if tariffs are enacted, given that they cannot be stockpiled in advance.

Although the price of goods like appliances and cars would take longer to increase, they will inevitably rise if tariffs take effect.

Despite the pause, Canada should consider re-evaluating its trade relationships

In addition to higher prices, expect a smaller selection of available goods should tariffs come into force—especially fewer U.S.-made products in stores.

Businesses that are the most vulnerable to tariffs are those that frequently import and export their goods and are part of a highly integrated supply chain. This burden will be acutely felt in situations where it’s possible that goods will be subject to tariffs each time they cross the border.

Companies that produce goods in one country and sell in another, such as Canadian manufacturers that sell to U.S. consumers, would also take a hit.

Other businesses likely to be strained by tariffs are those with tight margins and without healthy cash reserves. They may be forced to pass on the costs to consumers and might run into cash-flow issues since they must pay the tariffs upfront and might not receive payments until much later.

Canada’s response

Should the U.S. follow through on tariffs after 30 days, Canada’s response would be much more targeted. Its two-wave approach allows businesses to stock up in advance, mitigating the impact on Canadian businesses.

Goods targeted in the first round include orange juice, peanut butter, alcohol, and apparel, which are not top imports from the U.S. into Canada.

Canada has close substitutes produced domestically and also imports products like apparel from countries such as China or Vietnam. This strategy could help mitigate the immediate hit to consumers’ wallets as many are likely to switch to non-U.S. substitutes.

But Canada’s later wave of tariffs includes top imports from the U.S. like passenger vehicles, aerospace products, trucks, and buses. In addition to significant supply chain disruptions, consumers can expect to see auto prices go up substantially.

This chart shows Canada's top imports from the U.S. by product

Before the pause was announced, individual provinces implemented non-tariff responses to the U.S. measures.

Alcohol is one product where there are plenty of domestic options and non-U.S. import substitutes, meaning Canada’s decision is designed to hurt U.S. producers without causing too much pain to local consumers.

Additional insights

The Canadian dollar is expected to slide further to mitigate the impact of tariffs on Canadian exports to the U.S. in the event tariffs take effect. Previously, tariff threats pushed the loonie from 0.72 US before the election to 0.69 US—a level not seen since the early days of the pandemic.

While the depreciation of the Canadian dollar would make imports more expensive for Canadians, the net effect on inflation is far from one-to-one. The economic blow from tariffs would decrease aggregate demand, keeping prices from rising too much.

In the short-to-medium run, most of the increase in prices would be borne by consumers, not exporters.

This chart shows Canadian exports by country

The impact of tariffs extends beyond traded goods between Canada and the U.S. The unemployment rate would spike as jobs are lost, which lowers demand for all goods and services like new cars, dining out, and entertainment. Restaurants, hotels, and other services in border towns will be particularly hard hit.

The effect on each industry and each good depends on whether there are close Canadian substitutes to U.S. imports and how well supply chains can work around tariffs. For example, tariffs and retaliation would devastate auto companies in Canada, the U.S., and Mexico and leave them unable to compete with businesses in Asia or Europe.

The takeaway

Trudeau and Trump may have agreed to a pause, but the threat of a puzzling, lose-lose trade war launched by the Trump administration remains a serious concern.

If U.S. tariffs do take effect and Canada responds in kind, the disruption will slash billions of dollars from Canada’s Gross Domestic Product (GDP) this year and can hurt businesses and households in Canada, Mexico, and the U.S.

If tariffs turn out to be long-lasting, they will present another complete disruption to the Canadian economy and supply chains—a second in five years following the pandemic.

The scenario in which economic damage is minimized is one in which a trade agreement is negotiated, putting an end to tariffs. The longer tariffs and retaliation continue, the more fractured and uncompetitive the three countries’ economies become—and the more economic pain consumers would feel from higher prices, fewer goods available and fewer jobs.

This article was written by Tu Nguyen and originally appeared on 2025-02-03. Reprinted with permission from RSM Canada LLP.
© 2024 RSM Canada LLP. All rights reserved. https://realeconomy.rsmus.com/trump-tariffs-canada-response

RSM Canada LLP is a limited liability partnership that provides public accounting services and is the Canadian member firm of RSM International, a global network of independent assurance, tax and consulting firms. RSM Canada Consulting LP is a limited partnership that provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International. The member firms of RSM International collaborate to provide services to global clients but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmcanada.com/about for more information regarding RSM Canada and RSM International.