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


May 9, 2024

Taxpayers who filed information disclosing the beneficial ownership of a trust may have received a letter in error from the Canada Revenue Agency (CRA) stating they owe a $100 late-filing penalty.

The CRA posted a statement on its website that says some trusts that filed a T3 trust income tax and information return with a Schedule 15 after March 30 and before April 3 were charged a penalty in error. The deadline to file the return was April 2. “We are currently reassessing affected accounts to remove the penalty and a notice of reassessment will be issued,” the statement says.

Schedule 15 discloses the beneficial ownership of a trust.

Kim Moody, founder of Moodys Private Client Law LLP in Calgary, read about the error last month on a LinkedIn post from John Oakey, CPA Canada’s vice-president of taxation. After looking into the matter with the CRA, Mr. Moody notified affected clients and instructed them to ignore the letter as their situation would be reassessed. Despite that, he says approximately 10 clients contacted him about receiving the letter, confused about how to proceed.

The penalty error comes after the CRA’s decision to exempt bare trusts from filing T3 returns days before the deadline. Some taxpayers were filing bare trust returns for the first time as T3 reporting requirements became mandatory for informal trust agreements set up by clients over the years.

The reversal caught taxpayers and their accountants off guard as many had filed returns in advance of the deadline, sometimes paying hundreds in accounting fees depending on the volume and complexity of the trusts.

After all the confusion this tax season, for some taxpayers to receive a letter from the CRA about a penalty has resulted in even more frustration, says Debbie Pearl-Weinberg, executive director of tax and estate planning at CIBC Private Wealth in Toronto.

“Many people who do not work in the tax industry are not going to know that this CRA penalty was imposed in error,” she says.

Kevin Burkett, tax partner at Burkett & Co. Chartered Professional Accountants in Victoria, had a handful of clients question why they received the letter from the CRA as they knew he had filed the returns on time. Mr. Burkett sees the issue as part of a bigger problem – accelerating change in Canada’s tax system.

“The letter is a symptom of the fact our tax legislation is becoming so complex that everyone is struggling to interpret and apply these new rules in their own situations,” he says. “The CRA itself under added pressures, worsened by the onslaught of new tax legislation,” including the complex changes to the capital gains inclusion rate introduced in this year’s federal budget.

Mr. Moody says the CRA’s statement is “buried” on its website, making it difficult for the average taxpayer to find the information. “It’s the CRA’s job to broadcast widely and loudly,” he says.

The CRA says it ensured contact centre agents were ready to explain the situation and that it issued a message to tax preparers who submitted T3 tax returns electronically.

“Any payment that has been made related to the penalty will be automatically refunded,” a spokesperson with the CRA said in a statement sent via e-mail. “The CRA regrets any inconvenience that this situation may cause and is committed to providing the best possible service to Canadians.”

Mr. Moody says affected clients started to receive reassessments last week reversing the $100 penalty.

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