More than 40,000 Canadians have filed “bare trust” tax returns this year, despite the government’s last-minute suspension of new reporting requirements.
A bare trust is one in which one person has legal title to real estate or assets but has no actual ownership. While bare trusts can be complex, some are relatively simple, such as sharing a bank account or putting a parent’s name on the title to a child’s home in order to qualify for a mortgage.
The new requirements were introduced as part of the government’s Autumn 2022 Economic Statement and were due to come into effect this past tax season. Those with bare trusts had until April 2 to file a T3 tax return listing the trustees, beneficiaries and settlors for each trust.
But in late March, with just days to go before the deadline, the Canada Revenue Agency (CRA) announced that bare trusts would not have to be reported this year.
Last week, Revenue Minister Marie-Claude Bibeau said in the House of Commons that 44,034 Canadians still have Bear Trust tax returns filed. Her remarks were in response to a written question from Conservative MP Gary Vidal.
John Oakey, vice-president of the Canadian Institute of Certified Public Accountants, said the numbers weren’t a surprise: Many of the accountants he spoke to who knew about the rule changes had been preparing documents for clients well before the last-minute suspension.
“One of the things that’s unique about our profession is that when it comes to preparing a trust return, you spend the first few months doing all the planning,” he said.
“You don’t wait until the last minute and say, ‘I’m going to wait until the actual deadline,’ and then hit submit and file everything.”
The new rules were meant to target money laundering, terrorist financing and tax evasion. But many Canadians who had a simple trusting relationship I had trouble filing the proper paperwork..
According to documents tabled in the House of Commons last month, the CRA was fielding hundreds of complaints and concerns from Canadians about the bare trust reporting requirement as the deadline approached.
A spokesman for Bibeau’s office said the CRA will continue to process T3 forms that have been submitted.
“We recognize that the introduction of this new reporting requirement has impacted Canadians, many of whom have taken the necessary steps to comply with their reporting obligations,” Bibeau’s spokesman, Simon Lafortune, said in an email.
The rules will come into effect next year
Mr Oakey said the government had not adequately explained the changes early in the process, and despite the number of bare trust documents filed, Mr Oakey suspects a “significant amount” of bare trusts are going unreported.
“There are probably hundreds of thousands of naked trust agreements out there that people don’t even know they’re a party to because it’s so easy to create those relationships,” he said.
Lafortune said the requirement will take effect next year and the government is working to make Canadians more aware of the new rules.
“We are working with the Ministry of Finance to clarify this requirement and will communicate more information to Canadians as it becomes available,” he said.
Conservative Revenue critic Adam Chambers wrote to the Canada Taxpayer Ombudsman in April asking him to investigate how the CRA handled the Bear Trust issue.
“If we do not address this recent experience, we risk repeating similar mistakes in the future and causing significant and unnecessary stress and financial burden to taxpayers,” Chambers wrote to François Boileau.
In response, Boilhauault said he had received complaints from several Canadians about the naked trust reports and would monitor the issue.
“I share some of your concerns regarding this situation,” Boyleault wrote in response to Chambers’ letter, adding that he was not ready to launch a formal investigation at this time.
“Once we have all the information we need, we will be able to better determine our future course of action,” he wrote.
Boyleault’s office told CBC News on Friday that it is “continuing to gather more information from the CRA regarding the reporting requirements for the Bare Trust,” but that a formal investigation has not yet been launched.
