CRA’s bare trust flip-flop cost nearly $1 billion

The CRA said it made the decision to delay these new rules because the change had “an unintended impact on Canadians.” Photo Credit: Adobe Stock Images. 

The Canada Revenue Agency’s new rules for bare trust reporting cost Canadians more than $900 million, according to a survey of Canadian accounting firms.

The irony is that these new reporting rules ultimately never even came into effect.

The CRA introduced new rules this year for bare trust reporting standards. While bare trusts may seem abstract to a lot of people, the new rules put Canadians who have informal financial relationships with relatives in its crosshairs. 

Bare trusts used to be exempt from tax filing. The CRA changed that for the 2023 tax year. But most Canadians were unaware that having joint investments with an elderly relative or putting one’s name on a child’s mortgage is considered to be part of that category.

The panic across the country once Canadians realized that millions of taxpayers might be subject to these new reporting requirements ultimately led to a public backlash, spurring the CRA to announce on March 28 that the new rules would be waived for the 2023 tax year.

The fact that the CRA announced this on March 28, less than a week before trust reports were due on April 2, means that many Canadians who filed early had to go through the cumbersome process of meeting these requirements. And accounting firms spent millions training their staff on how to comply with the CRA’s new rules.

On average, the survey, conducted by Video Tax News’ Joseph Devaney, found that accounting companies spent an average of $13,000 each to train their staff to learn how to adhere to the CRA’s new requirements and charged customers an average of $11,000 for bare trust reports that were submitted prior to March 28.

The survey also found that the average accounting firm spent $12,000 in bare trust reporting costs on returns that were not filed prior to March 28. Those costs will likely be borne by both clients and firms.

The CRA said it made the decision to delay these new rules because the change had “an unintended impact on Canadians.”

The CRA defines a bare trust as “a trust arrangement under which the trustee can reasonably be considered to act as an agent for all the beneficiaries under the trust with respect to all dealings with the trust’s property.” 

That means a bare trust exists when someone holds legal title to an asset but it really belongs to someone else. That’s how relatives signing onto mortgages or children adding their names to elderly relatives’ investments get included. 

According to the new rules, most trusts worth less than $50,000 will not require reporting.

It’s important to note that the CRA simply suspended these rules for the 2023 tax season: the rules have not been cancelled outright. Without further action, Canadian taxpayers will have to deal with these bare trust rules next year. 

Some of the new requirements will mean submitting a T3 Trust form, sending the CRA a copy of the trust document and giving the trust a name. 

Those who file late are charged $25 per day. The maximum penalty is $2,500. 

Many were also caught off guard because of the date the trust reporting was due. While income tax reports are not due until the end of April, the trust reporting deadline was April 2. 

While the CRA implemented these new trust rules, this was all trigged by legislation passed by the Trudeau government in 2022 that instructed the CRA to start tracking bare trusts. 

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