Bare trust filing fiasco led to ‘wasted time and effort’: CRA watchdog

A last-minute decision to exempt new bare trust filing requirements led to “wasted time and effort,” according to a new report from the office of Taxpayers’ Ombudsperson François Boileau.

The Canada Revenue Agency (CRA) didn’t provide timely information to allow taxpayers and tax professionals to prepare for the new filing requirements and what was provided was less than ideal, the 80-page report suggests.

Boileau launched an investigation into the bare trust filing last summer after hearing multiple complaints about the CRA’s 11th-hour decision to exempt bare trusts from trust filing requirements that took effect for the 2023 tax year. 

A bare trust relationship is one where a person, known as a trustee, has legal ownership of a property or asset but doesn’t hold beneficial ownership. In such a relationship, a “trustee can take no action without instructions from that beneficiary and the trustee’s only function is to hold legal title to the property,” according to the government’s definition.

Unlike express trusts, where people seek out a lawyer to create a trust, bare trusts can happen almost accidentally — when a parent cosigns a mortgage for a child and becomes partial owner, or when an aging parent lists their children on a bank account to help pay the bills.

Taxpayers with a bare trust were told they had to file their forms by April 2, 2024. But with just days to go before that deadline, the CRA announced it would be pausing the requirement due to an “unintended impact on Canadians.”

Boileau’s report said that while the decision to make bare trusts exempt came was the “right one” but that it came “extremely late.”

“One thing that remains unclear is why the CRA took so long to consider an exemption,” the report reads. It points out that the tax agency had announced in November of 2023 that it wouldn’t enforce penalties for late filers except in extreme cases.

“The justification provided to senior CRA executives for the penalty relief did not appear to differ greatly from what was provided for the filing exemption,” the report says.

More than 40,000 Canadians filed the T3 tax form despite the 11th-hour pause last year. Many had paid pricey tax-filing fees to complete their forms before the exemption was announced.

“The bare trust exemption meant that all of the bare trusts who had already filed did so for no reason, and in many cases at great expense,” Boileau’s report reads.

“Taxpayers and representatives should not have been left to spend months trying to understand the legislation when the CRA ultimately exempted bare trusts from the filing requirements. All of this was wasted time and effort.”

The report notes that many taxpayers argued that they should be compensated for fees they had paid to file their forms.

“The CRA can only work within the framework of the law, and the law does not allow it to compensate taxpayers in this regard,” the report says.

Lack of ‘clear and timely information’

The report also raised concerns with how the new…