Government policies make tax filing harder than it should be

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One of my friends — a fantastic tax accountant practitioner, Cory Litzenberger, in Red Deer, Alta. — posted a sarcastic and humorous post on LinkedIn that was also quite sobering and depressing when it comes to filing your taxes this year.

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The post described a fictional conversation he had with a client who thought he was well prepared for this year’s tax filing. The conversation hit upon the updated Underused Housing Tax filing obligations, the “bare trust” debacle and what the requirements are for this year, how the capital gains proposals will be treated, how to fiasco short-term rental property expenses and some other troublesome issues. The fictional conversation ended with Cory saying, “And that’s when my client shot me, your honour.”

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Why was his post sobering and depressing? Because there’s a lot of truth in his fictional conversation (obviously, not the shooting). The past few years have been a complete debacle for Canadian taxpayers and their tax advisers and preparers to ensure proper compliance. Why? Let’s revisit a trifecta of policies over the past couple of years.

In 2023, the new Underused Housing Tax tax compliance season began to report for the 2022 calendar year. This silly and politically motivated tax came with numerous filing obligations for Canadians even though they were not subject to any tax. Failure to file came with $5,000 penalties.

This obvious data grab by the government was met with significant interpretive issues in how to comply. The Canada Revenue Agency (CRA) tried its best to provide answers to accountants and finally announced a last-minute filing reprieve shortly before the deadline. Numerous filing extensions were subsequently announced.

Later, recognizing the complete waste of resources and the outcries from the tax community, the government amended future filing requirements for Canadians.

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Next, the trust reporting rules, first proposed in 2018 and amended in 2022 to draw in bare trusts to the reporting net (despite many warnings from the tax community about the problems this would cause), became applicable for the first time for the 2024 tax filing season for 2023 reporting.

As predicted, the filing requirements — and the bare trust requirement in particular — created a complete mess of interpretive challenges. It was met with a last-second filing reprieve by the CRA announced on March 28, 2024, just days before the filing deadline and after great efforts were made by taxpayers and their advisers to try to comply. Late last year, the CRA announced a reprieve for filing for bare trusts for the 2024 tax year.

Finally, the 2025 personal tax filing season is shaping up to be another debacle. The capital gains inclusion rate proposals, first announced in the 2024 federal budget, have been administered last rites, but the CRA is still administering the proposals as if they are law. This will add unnecessary confusion, compliance and likely a mountain of amendments in the future.

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Numerous tax practitioners and even the apolitical Joint Committee on Taxation have called for clarity. Given our country’s current political environment, I’m not hopeful such clarity will arrive, but one can hope.

Where does all this leave us? It leaves us with a tax administration system that is significantly challenged.

The huge increase in CRA headcount is certainly not helping. Every political tax whim of this government — and there are many — needs to be ultimately reported and administered. The reporting aspect is generally handled by accountants and some non-accountant tax preparers.

There is a huge shortage of accountants in North America. Of those remaining in the profession, there are significant numbers leaving public practice. Of the youngsters who do enter the profession, many are not interested in the rigours, grind and chaos — especially in recent years — associated with the preparation of tax returns.

All of the above leaves the reporting and compliance functions of our tax administration system in a precarious position.

It is incumbent on the Government of Canada — especially the political branch of the Department of Finance — to engage more with the tax legislation branch and its great staff members as well as to heed warnings that I’m sure are being passed along with many of the political tax proposals.

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It’s obvious, though, that the tax legislation branch is beholden to its political masters, who most certainly drive the bus. It’s also likely that the political branch often ignores or overrides comments from the bureaucrats who have their fingers on the pulse of the policy impacts.

It also behooves present-day and future political masters to engage in meaningful discussions with tax practitioners whenever tax proposals, particularly politically motivated ones, are brought forward — and by meaningful, I don’t mean the “pat on the head, we know best” types of engagement.

Such politicians need to truly appreciate the chaos they can create with taxpayers and their advisers. They also need to appreciate that tax practitioners and preparers are the ones navigating a turbulent sea of ever-changing laws. Ignoring their expertise and experience risks turning an already complex system into chaos, which is a productivity drag, something this country does not need more of. We’re experiencing that right now with the capital gains proposals.

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Yes, I know I’m dreaming. Tax and politics are inextricably linked. However, history can provide inspiration for a principled approach. Michael Wilson, one of Canada’s best finance ministers in the 1980s, was known for his commitment to economic stability and fairness. He emphasized that the tax system should not be a playground for political ideology, but a foundation for equitable growth and competitiveness.

It’s time to heed such an example. We don’t need a quadfecta for the 2026 tax filing season and future tax seasons. There’s much to learn from the sarcasm of my friend Cory.

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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