Some individuals who submitted “bare trust” documents to the Canada Revenue Agency last year may have done so unnecessarily as the federal government considers additional alterations to the reporting guidelines — a move that could potentially lead to another tumultuous tax season, as warned by an accountant.
In 2022, the government implemented new tax reporting regulations for trusts that were set to come into effect for the 2023 tax year. While these rules aimed to target issues such as money laundering, terrorist financing, and tax evasion, many Canadians with simple bare trusts found themselves obligated to file complex forms.
The CRA made a sudden decision in March 2024, just days before the filing deadline, to halt the reporting requirements for bare trusts, citing an “unintended impact on Canadians.” This pause was extended last year, with the Finance Department proposing changes aimed at offering clarity to taxpayers.
A bare trust arrangement involves one individual, referred to as a trustee, holding legal ownership of a property or asset without beneficial ownership. The trustee’s sole role is to hold legal title to the property and cannot act without instructions from the beneficiary.
Unlike express trusts, which are typically established by a lawyer at a client’s request, bare trusts can arise inadvertently — for instance, when a parent co-signs a mortgage for their child or when an elderly parent includes their children on a bank account for bill payment assistance.
The proposed adjustments, introduced in August, would exempt certain types of bare trusts, such as joint ownership situations like a joint bank account held by spouses, a parent co-signing a child’s mortgage for their principal residence, or when spouses jointly reside in a home owned by only one spouse.
While over 44,000 individuals submitted forms before the last-minute pause, some may fall under the proposed exemptions. More consultations could have prevented this “very wasteful” scenario, as suggested by experts.
The CRA watchdog criticized the tax agency for the abrupt 2024 pause, deeming it a cause of “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 professionals to prepare for the new requirements.
Norman Tollinsky from Thornhill, Ont., enlisted an accountant to file forms for two trusts in 2024 but now anticipates only needing to file for one following the potential clarifications by the government.
Tollinsky shared his optimism about the proposed changes benefiting many individuals but acknowledged that not everyone would be equally impacted. He expressed frustration over the complexity of the forms, hoping for simplified processes for Canadians dealing with bare trusts.
Minor advocates for an educational campaign by the CRA to inform affected taxpayers about the requirements and recommends holding off on penalties as individuals adjust to the changes.
The CRA is awaiting the adoption of proposed changes before determining if Canadians will need to file bare trust forms this year. It pledged to communicate decisions promptly to alleviate uncertainties and reduce the filing burden for taxpayers and preparers if legislation is not introduced.
The Finance Department stated that legislation will be introduced at an appropriate time, as questions remain regarding when the government will present a bill to enact the proposed modifications.