Canadians may have needlessly filed bare trust tax forms as feds propose exemptions

Some taxpayers who filed “bare trust” forms to the Canada Revenue Agency last year may have done so needlessly as the federal government examines further changes to the reporting requirements — changes that could risk creating another chaotic tax season, one accountant warns.

The government introduced new tax reporting rules for trusts in 2022 that were slated to take effect for the 2023 tax year. While the rules were brought in to target things such as money laundering, terrorist financing and tax avoidance, thousands of Canadians who had simple bare trusts found themselves having to file complicated forms.

The CRA made a last-minute decision to pause the reporting requirements for bare trusts in March 2024 — just days before the filing deadline — citing an “unintended impact on Canadians.”

The tax agency decided to continue the pause last year. Over the summer, the Finance Department put forward some proposed changes it says will “provide certainty” to taxpayers.

A bare trust relationship is one where a person, known as a trustee, holds legal ownership of a property or asset but not beneficial ownership. The “trustee can take no action without instructions from that beneficiary and the trustee’s only function is to hold legal title to the property,” according to the government’s definition.

“Really, [a bare trust trustees’] only function is to hold legal title,” Ryan Minor, a director with Chartered Professional Accountants of Canada, told CBC News.

Unlike an express trust, typically created by a lawyer at the request of their client, bare trusts can happen almost accidentally — when a parent co-signs a mortgage for their child and becomes partial owner, or when an aging parent lists their children on a bank account to help pay the bills.

The proposed changes, put forward in August, would exempt certain bare trusts, according to the Finance Department. Such exemptions include:

• A situation that is a true joint ownership, such as a joint bank account held by spouses.

• A parent going on title for a child’s principal residence to allow the parent to co-sign the child’s mortgage.

• A situation where spouses jointly occupy a home but its title is in the name of only one spouse.

“A number of these circumstances would already not fall within the trust reporting rules, but they are expressly set out as exempt to help provide certainty for parties with respect to their not being required to provide a beneficial ownership return,” a spokesperson for the department said in an email.

A case where an adult child is jointly named on the bank account of an elderly parent could also be exempt under the proposed changes, as long as the value of the account is below $250,000.

More than 44,000 filed forms before last-minute pause

Minor said his organization approves of the proposals but said he wished they would go further.

“Bottom line, the legislation is better. But there still will be quite a few situations where taxpayers are required to file and they have to know that they’re required to file. So that’s the tricky part,” he said.

More than 44,000 taxpayers — some of whom paid tax filers to fill out the paperwork on their behalf — still filed bare trust forms in 2024, despite the CRA hitting pause.

Minor said some of those who filed could fall under the proposed exemptions, and that more consultations could have avoided this “very wasteful” situation.

The CRA’s watchdog blasted the tax agency for its last-minute pause in 2024, saying it had led to “wasted time and effort.”

According to an 80-page report last winter from François Boileau, the taxpayers’ ombudsperson, the CRA didn’t provide timely information to allow taxpayers and tax professionals to prepare for the new filing requirements, and what was provided was less than ideal.

Norman Tollinsky from Thornhill, Ont., paid an accountant to file the necessary forms for two trusts in 2024. With the government looking to clarify the requirements, he now suspects he will only need to file the forms for one of them.

“Some of these changes that they’re proposing are positive and will help a lot of people, but not everybody,” he told CBC News.

Tollinsky attempted to file the trust forms himself in 2024, but found them overly complicated. He hopes that the CRA will provide simpler forms for Canadians who need to file for bare trusts.

“I’m still upset that I had to pay for an accounting firm,” he said.

Minor said the CRA will need to embark on an education campaign to ensure impacted taxpayers know how the requirements apply to them. He also suggested the agency hold off on imposing any penalties as Canadians adapt.

“This is challenging legislation and there’s going to be a lot of learning for everybody,” he said.

Limited time to enact changes

When asked if Canadians will be required to file bare trust forms this year, the CRA indicated it is waiting to see if the proposed changes are adopted.

“If no legislation is tabled, the CRA will consider options to reduce the filing burden on taxpayers and preparers for bare trusts in the 2025 tax year. We are committed to communicating any decision as early as possible to provide clarity and certainty,” a CRA spokesperson said in an email.

Some of the proposed changes could impact the 2025 tax year, giving the government little time to act — either with legislation or a ways-and-means motion.

Minor said the tight timeline would again make it difficult for the CRA to advertise the changes to taxpayers.

CBC News asked Finance Minister François-Philippe Champagne’s office when the government expects to table a bill to enact the proposals. The minister’s office deferred to the Finance Department, which said “legislation will be introduced in due course.”