Five ways to make sure we avoid another tax filing debacle

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Another tax season, another tax filing debacle: the Canada Revenue Agency on March 11 announced its systems were not yet ready for personal tax filings that include capital gains.

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“The CRA recommends that those impacted by this situation wait until the updates are completed in the coming weeks before filing their income tax and benefit return,” it said. “The CRA will grant relief in respect of late-filing penalties and interest until June 2, 2025, for individual filers and until May 1, 2025, for trust filers to provide additional time for taxpayers reporting capital gains to meet their tax filing obligations.”

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In other words, affected Canadians won’t be able to file their returns until the beginning of April. Accountants will be even more backed up.

This is the third year in a row that some issue has affected tax preparation. For the 2022 filings, it was the massive confusion involving the new Underused Housing Tax. Last year, it was the bare trust debacle. Now, it’s the capital gains confusion and delay.

For this year, you have to feel for the CRA. Like most Canadians, the CRA was at the mercy of the government that was managing the capital gains proposals. First announced in the April 16, 2024, federal budget, the management of the proposals became a textbook example of how to not introduce taxation policy.

The final spike in the proposals came on Jan. 31, 2025 — three months before the general April 30 filing deadline for individuals to file their personal tax returns — when the government announced it was “deferring” the proposals to Jan. 1, 2026.

Combine the deferral with newly crowned Prime Minister Mark Carney saying his government will not support the proposals and Conservative Party Leader Pierre Poilievre stating he does not support the capital gains proposals, and these proposals are dead.

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This means the CRA, which was administering the proposals as if they were law pursuant to their longstanding administrative policy, had to change back to its “old” system for capital gains. I’m not a computer programmer, but I can only imagine it’s not easy to do that.

You can logically question why the CRA was administering the proposals as if they were law when a bill was not even before Parliament. This decision needs to be reviewed for future similar situations and we also need a significant rethink of how taxation policy is developed and implemented.

However, the recent tax debacles are just one piece of a much larger puzzle. Canada’s economy has been extraordinarily mismanaged for years, and our tax policies and systems have done nothing to address such mismanagement.

As economist Jack Mintz recently said, we can’t afford another lost decade. Our country risks economic stagnation if we don’t address our structural issues. He highlighted that our economy has been stagnant, with virtually no growth in real per capita gross domestic product (GDP) for the past 10 years. Our productivity, as measured by GDP per working hour, is 11th-lowest among 36 Organization for Economic Co-operation and Development (OECD) countries, just three-quarters of Ireland’s and 80 per cent of Poland’s.

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Regarding taxation, here are five ways to help fix the mess we are in.

1. Future governments need to stop announcing significant tax changes through news releases. Introducing significant tax policy changes should go through proper legislative and stakeholder review, with clear timelines and structured implementation.

2. Recognize that good tax policy matters. It’s not all about politics. Instead, good tax policy drives investment decisions and attracts successful and talented people, which our country desperately needs. High tax rates and continuing attacks on successful people drive those people and investment capital out of Canada. We need to stem the tide of those departures and reverse it quickly.

3. Genuine efforts need to be made to simplify the Income Tax Act and its related administration. It has become way too complex for the average Canadian to navigate. Ideally, it would be great if the average Canadian would understand their tax affairs without requiring a team of experts. Of course, that would require Canadians to increase their financial literacy, something that is desperately needed to help make informed choices, especially at the ballot box.

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4. Ensure the CRA is prepared before changes take effect. The past three years of horrible tax filing seasons should never happen again.

5. Overall, we need significant tax reform to deal with the above challenges. It’s long overdue.

None of the above fixes are rocket science. It’s just good governance, something that has been sorely lacking in Canada.

The next federal election will be an important referendum on Canada’s economic future. The choice is clear: keep heading down the path of reckless tax policy and economic mismanagement or elect leadership that actually understands how tax policy impacts the economy.

On Oct. 21, 2019, Canada’s Election Day that year, I was in the audience at the Vancouver tour stop of the classic rock band The Who — one of my favourite bands. I loved the concert, but despised the election result. Five and a half years later, I’m hoping Canadians Won’t Get Fooled Again. As the song says, “Meet the new boss, same as the old boss.”

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If we don’t demand real tax reform, we won’t just get fooled again; we’ll get fleeced again.

To those who find comfort in shouting “Elbows up,” I understand the assertive Canadian patriotism. But empty slogans — what we call “all hat, no cattle” in my home in Calgary — won’t fix our broken tax system or our mismanaged economy. Instead, we need real leadership, meaningful tax reform, and a clear path out of this lost decade. It’s time for action, not just words. Vote wisely.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody. 

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