Some individuals who submitted “bare trust” forms to the Canada Revenue Agency in the previous year might have done so unnecessarily, as the federal government is exploring additional alterations to the reporting regulations – changes that could potentially lead to another chaotic tax season, cautioned one accountant.
In 2022, the government implemented new tax reporting regulations for trusts scheduled to come into effect in the 2023 tax year. While these rules were introduced to combat issues like money laundering, terrorist financing, and tax evasion, many Canadians with straightforward bare trusts were required to complete intricate forms.
The CRA made a sudden decision to halt the reporting obligations for bare trusts in March 2024, shortly before the filing deadline, citing an “unintended impact on Canadians.” This pause was extended last year. During the summer, the Finance Department proposed some modifications aimed at offering certainty to taxpayers.
A bare trust arrangement involves a trustee holding legal ownership of a property or asset without beneficial ownership. The trustee can only act upon instructions from the beneficiary and is solely responsible for holding the legal title to the property.
Ryan Minor, a director with Chartered Professional Accountants of Canada, mentioned that the primary function of a bare trust trustee is to maintain legal title. Unlike an express trust usually established by a lawyer at a client’s request, bare trusts can arise inadvertently, such as when a parent co-signs a mortgage for their child or when an elderly parent adds their children to a bank account for bill payments.
The proposed changes introduced in August would exempt specific bare trusts, as outlined by the Finance Department. These exemptions include scenarios like true joint ownership, a parent being added to a child’s principal residence title for co-signing a mortgage, and situations where spouses jointly occupy a home titled under one spouse.
More than 44,000 forms were submitted before the last-minute pause, despite the CRA’s decision. Minor supported the proposals but suggested they could be more comprehensive to avoid unnecessary filings by taxpayers who might qualify for exemptions.
The taxpayers’ ombudsperson criticized the CRA for the abrupt pause, citing wasted time and effort. An 80-page report from François Boileau, the taxpayers’ ombudsperson, highlighted the lack of timely information provided by the CRA for taxpayers and tax professionals to prepare for the new filing requirements.
Norman Tollinsky from Thornhill, Ontario, who enlisted an accountant to file forms for two trusts in 2024, believes that with the clarified requirements, only one trust might necessitate filing. While some proposed changes are positive, Tollinsky emphasized the need for simplicity in the forms.
Minor emphasized the importance of educating affected taxpayers on the requirements and recommended the CRA refrain from imposing penalties as Canadians adapt to the changes.
The CRA is awaiting the adoption of the proposed changes before determining if Canadians must file bare trust forms this year. If no legislation is introduced, the CRA plans to explore options to reduce the filing burden for taxpayers and preparers in the 2025 tax year.
With limited time to implement changes impacting the 2025 tax year, the government faces challenges in effectively communicating these alterations to taxpayers. The Finance Department assured that legislation to enact the proposals will be introduced in due course.
