Globe Advisor’s Best of 2024: The capital gains saga and other tax stories

For years, an increase to the capital gains inclusion rate was the source of pre-budget speculation and hand-wringing. This year, the Liberal government surprised almost everyone by actually raising it.

In doing so, they drew considerable ire from certain business groups and generated a lot of questions – many of them still awaiting answers.

Add in some bare trust intrigue, increased audit power and tax-bill surprises courtesy of guaranteed investment certificates, and it was a dramatic year in tax reporting. Here are the highlights:

Advisors rush to revamp tax strategies after Ottawa’s surprise change to the capital gains inclusion rate

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Following the April 18 budget, advisors had less than 10 weeks to help thousands of Canadians navigate major financial decisions triggered by the pending hike in the capital gains inclusion rate. Here were some of the initial strategies.

How Ottawa’s hike to capital gains inclusion rate affects trusts

The new tax rules mean that trusts, alongside corporations, saw their capital gains inclusion rate increase to 66.7 per cent from 50 per cent annually. That led Canadians to use trusts for financial, estate and tax planning purposes to review their structures and effectiveness.

Increase to capital gains inclusion rate has led some business owners to re-evaluate their plans

Next up: business owners, especially those nearing retirement. Many saw their plans upended by the capital gains changes and were forced to consider alternative strategies, such as life insurance. As for younger business owners investing inside a corporation? A report from CIBC says the strategy still makes sense.

Cross-border tax experts see rise in activity as clients ponder effects of capital gains changes

Before “move to Canada” searches spiked after Donald Trump’s re-election in November, cross-border tax experts were fielding calls from clients thinking about leaving Canada in response to changes to the capital gains inclusion rate. The U.S. was the most popular destination.

Delays with capital-gains tax legislation put some taxpayers in precarious position with the CRA

June 25 came and went, but the waiting continues. Political turmoil in Parliament this fall delayed the passage of the capital-gains tax legislation, creating problems for some taxpayers and their advisors. The CRA said it would provide arrears interest and penalty relief to corporations and trusts that had to file a return before March 3, 2025, without the benefit of having access to updated CRA forms reflecting the new inclusion rate. But some advisors still have questions.

Where the CRA is focusing audit activity this year

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Every year, thousands of taxpayers are selected for an audit by the Canada Revenue Agency, but some areas were more likely than others to be on the tax authority’s radar last tax season. Those areas included business expenses and cross-border assets and income. Advisors can keep those trends in mind as they ensure clients remain compliant in the upcoming tax season.

Seniors scramble to manage tax impact of higher GIC returns

In recent years, investors stocked up on GICs, lured by higher rates not seen in years. It made sense at the time, but many of those investors were faced with an unfortunate after-effect last April: higher income tax bills. Retired seniors who have fewer write-offs and deferrals were among the hardest hit.

CRA reassessing charges for late trust filing after issuing penalties in error

At the last minute, the CRA said it wouldn’t require Canadians with bare trusts to adhere to complex new tax-reporting requirements for the 2023 taxation year. Still, some taxpayers who filed information disclosing the beneficial ownership of a trust received a letter in error from the CRA stating they owe a $100 late-filing penalty. It was just another episode in the bare trust ordeal, which should take a pause this tax season. The agency said the rules remain on hold for the 2024 taxation year, as taxpayers and accountants await final amendments to a much-criticized policy.

Don’t miss out on these more obscure tax deductions

Most clients know about the common deductions such as credits for charitable donations or medical expenses. But many may not be aware of more obscure – and potentially lucrative – deductions. Some of these have been around for decades, while others were added more recently to support certain interest groups or initiatives. Here are some to review before the next tax season.

The CRA is getting more audit muscle. Here’s why tax experts are concerned

The CRA is getting expanded powers to force taxpayers to provide information under oath during an audit. Legal experts believe the change is extreme and say the Finance Department has provided little guidance on how the new rules will be applied and what penalties could be imposed. There are also worries the new powers could be used in a way disproportionate to the intended purpose, which could lead to unfair or unequal treatment of taxpayers.