A recent report from François Boileau, the Taxpayers’ Ombudsperson, highlights the challenges caused by the sudden decision to exempt new bare trust filing requirements. The report indicates that the Canada Revenue Agency (CRA) failed to provide timely and adequate information to taxpayers and tax professionals, resulting in wasted time and effort.
After receiving numerous complaints about the CRA’s last-minute exemption of bare trusts from filing requirements for the 2023 tax year, Boileau initiated an investigation. Bare trust relationships involve a trustee holding legal ownership of assets without beneficial ownership, requiring instructions from the beneficiary for any actions. Unlike express trusts that are deliberately created, bare trusts can occur unintentionally, such as when a parent cosigns a mortgage or adds children to a bank account.
Affected taxpayers were initially instructed to file their forms by April 2, 2024, but shortly before the deadline, the CRA announced a pause due to unintended consequences. Boileau’s report acknowledges the correctness of exempting bare trusts but criticizes the delayed decision-making process by the CRA.
Despite the exemption, over 40,000 Canadians submitted T3 tax forms before the pause was announced, incurring unnecessary expenses. The report emphasizes that taxpayers and professionals should not have been burdened with understanding the legislation when exemptions were later granted.
Furthermore, the report points out deficiencies in how information about the new rules was communicated to the public. The CRA’s delayed release of FAQs and lack of clear guidance left taxpayers confused. The report also highlights the lack of relatable examples provided to help taxpayers understand their obligations.
The report suggests that the vague wording of the legislation introducing the new rules made compliance burdensome for the CRA. Boileau recommends internal reviews for better communication of tax changes and simplification of the T3 form for bare trust filers.
In response to the issues raised, the CRA announced another exemption for bare trust filings for the upcoming tax season, with further consultations planned by the Finance Department to clarify trust filing rules.