Some Canadians are out money after CRA made last-minute change to bare trust rules

Some Canadians are feeling frustrated after having paid hundreds of dollars in tax preparation fees for something the government says it will no longer require this year.

The Canada Revenue Agency (CRA) announced last week that Canadians with “bare trusts” won’t be required to file a T3 tax return form under new reporting rules for trusts that took effect this tax season.

Under the new reporting rules, anyone with a bare trust initially was supposed to file a T3 tax return form naming the trustees, beneficiaries and settlors of each trust by April 2.

The reversal of that rule was announced just days before the T3 filing deadline, after many taxpayers already had done their preparation work.

“I think it’s a total waste of my time. It’s a total waste of my money,” said Patricia Brubaker from Toronto.

Like many others with bare trusts, Brubaker had her accountant file the T3 form on her behalf. She said she hasn’t been billed for that work yet but expects it to cost upward of $700.

“I’m going to have to pay for this, whether it had to be filed or not,” she said.

There is no definition of a bare trust in the Income Tax Act. The CRA defines a bare trust as “arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property.”

John Oakey, a vice president with the Chartered Professional Accountants of Canada, said a bare trust relationship is one where a person has legal ownership of a property or asset but doesn’t hold beneficial ownership. While some bare trusts can be rather complex, he said, most are fairly simple.

“These are very informal relationships and nobody thinks twice about them because they’re so informal,” Oakey said.

A common example would be when a parent is named on the title of a child’s house in order to help them qualify for a mortgage.

“A lot of these people enter into these bare trust relationships quite innocently and quite accidentally, and they have no idea,” Oakey said.

Brubaker is jointly named on her 92-year–old mother’s bank accounts in order to help her pay her expenses.

“In addition to having to take care of my mother — which is fine, it’s my responsibility … this is both an additional paper burden and an additional cost,” she said.

Canadians are not taxed on the value of a bare trust, but failing to file a required T3 form would have the risk of a hefty fine — although the CRA announced previously it would waive the penalties in most cases this year.

Gail Harding of Kingston, Ont. is in a situation similar to Brubaker’s. Her mother has dementia; Harding holds a joint bank account with her in order to pay bills on her behalf.

Harding said she’s also waiting on a final bill from her accountant for filing a T3, one that she expects will amount to hundreds of dollars. She said the last-minute rule change made her feel like she had “been had.”

“It was a little late in the game to find out that they decided to reverse that decision,” she said. “That horse is out of the gate and it’s down the road and ain’t coming back.”

Harding said it wasn’t clear to her why the government wanted people like her to report on bare trusts in the first place.

“It just looks like a wishy-washy attempt at throwing out a big net to see what they could scoop up when they really didn’t know what they were fishing for in the first place,” she said.

New rules meant to target laundering, tax avoidance

Trust reporting rules were introduced as part of the government’s 2022 fall economic statement and were meant to target things such as money laundering, terrorist financing and tax avoidance. The new rules took effect for the 2023 tax reporting season.

Oakey said the government didn’t do a great job of communicating the new reporting requirements or explaining why they were necessary. He also said the reporting measures were too broad in scope.

“The legislation as drafted goes way beyond capturing information for anti-money laundering, combating terrorist financing or even tax evasion. It’s capturing all kinds of information on average individual taxpayers that have nothing to do with any of that,” he said.

Oakey suggested that accountants are also frustrated by the last-minute change.

Given that the forms can be hard for the average person to understand, Oakey said, his organization anticipated a high demand for T3 preparation.

“Accountants had to spend a lot of time and resources to build an infrastructure in order to be able to handle the volume of bare trusts that were going to be coming in the door that needed to be filed,” he said.

Norman Tollinsky from Thornhill, Ont. said downloaded a T3 form and attempted to fill it out himself before turning to his accountant. He said he had to pay roughly $1,000 to file two T3 forms.

“It’s shocking that they didn’t give any thought to those who had already incurred the cost of filing. What were they thinking? ‘Too bad, so sad’?” he said.

Tollinsky said he intends to send a bill to the government for his accounting fees.

“I don’t expect to be paid for it. But I want to make the point anyway,” he said.

Last week, the CRA noted in a media statement that the bare trust reporting requirements “had an unintended impact on Canadians.”

In a separate statement to CBC News on Thursday, the tax agency said it would be working to “to further clarify its guidance on this filing requirement” over the coming months.