Bare trusts exempt from new reporting rules for 2023, CRA says


March 28, 2024

The Canada Revenue Agency says it won’t require Canadians with bare trusts to adhere to complex new tax-reporting requirements for the year 2023, after recent legal amendments meant to increase transparency around trusts caused an uproar among both many affected taxpayers and tax professionals.

The announcement, which came just days before this year’s April 2 deadline for filing trust returns, means tax filers won’t have to report bare trusts this year unless the agency makes a direct request for the files.

The new rules have been lambasted for including onerous requirements to disclose information to the CRA that critics said were particularly hard to comply with in the case of bare trusts, which are often informal arrangements that aren’t documented in writing.

In a statement online the tax agency said it was exempting bare trusts in recognition that the new reporting requirements have had “an unintended impact on Canadians.”

Chartered Professional Accountants of Canada, which represents the profession at the national level, had been among the groups asking the CRA to push back the deadline for filing bare trust returns, said John Oakey, vice-president of taxation at the organization.

Instead, the tax agency used its administrative powers to waive the filing requirements entirely for bare trusts for the 2023 tax year, Mr. Oakey said, calling the move “a much better outcome” compared with a deadline extension.

A trust is a legal relationship in which someone called a trustee holds property for another person known as the beneficiary. In a bare trust, the trustee can only act on the instruction of the beneficiaries.

Accountants and tax lawyers warned that many ordinary, poorly documented arrangements used by Canadians to manage family finances constituted bare trusts that would be caught in the new rules. In many cases, those affected by the new rules never formally or intentionally set up a trust.

Common scenarios involve people who hold title to their adult children’s home because they co-signed their mortgage and those who have their names on their elderly parents’ bank or investment accounts.

This tax season was supposed to be the first time in which Canadians would have to file what’s known as a T3 Trust Income Tax and Information Return for bare trusts, which were previously exempted from having to report information to the CRA.

Part of the difficulty of complying with the reporting requirements stemmed from the fact that assessing whether a bare trust exists can involve extensive information gathering and complex interpretations of common law, according to many tax advisers.

A March online survey conducted by The Globe and Mail through the Carrick on Money newsletter shows the new reporting rules for bare trusts were forcing many taxpayers to spend hundreds – if not thousands of dollars – in accounting and legal fees in addition to routine tax-preparation costs.

While the CRA’s announcement is good news, showing the government listened to sustained and increasing criticism, the fact that it came so close to the filing deadline means both individual and corporate taxpayers have already spent millions of dollars in fees and expenses, said Allan Lanthier, a prominent tax expert and retired partner at EY.

“The Minister of Finance should take a hard look at this fiasco, and develop a new, consultative approach to legislative drafting so that these types of mistakes don’t happen again in future,” Mr. Lanthier said via e-mail.

Kevin Burkett, partner at Burkett & Co. Chartered Professional Accountants, said the late notice would punish conscientious taxpayers and tax professionals who had already submitted bare-trust returns. “Your most honest, ethical taxpayers and practitioners have probably made their bare trust filings already,” he said.

The trust reporting requirements had also resulted in significant extra costs and workloads for accounting firms, according to several tax professionals who spoke to The Globe.

To help Canadians comply with the rules, CRA had previously said it wouldn’t apply penalties for 2023 bare trust returns submitted after the deadline, except in blatant cases of gross negligence. On Thursday, the agency went further by exempting bare trusts entirely for the 2023 tax year.

The move represents the second time in four months that the federal government has walked back new tax-filing requirements. In November, Ottawa announced it would largely scrap reporting obligations for Canadians stemming from the Underused Housing Tax (UHT). The measure, which is meant to discourage foreign real estate investors from leaving residential property underused or vacant, also affects many Canadian and permanent resident homeowners and some Canadian corporations.

Both in the case of trusts and with the UHT, the primary impact of the recent tax changes on Canadians is to create new obligations to disclose information to the CRA, rather than to introduce new taxes.

On bare trusts, the tax agency said in the statement announcing the exemption for 2023 that it will work with the Department of Finance over the coming months to clarify its guidance on this filing requirement. It also said it will share with Canadians further information as it becomes available.

Mr. Oakey said he hopes those consultations will produce rules that, while satisfying Ottawa’s goal of boosting transparency around trusts, are also workable.

“Let collectively come up with rules that actually capture that information without being so broad in scope that they’re capturing useless information.”

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