Thousands of ‘bare trust’ tax forms filed despite eleventh hour pause on reporting requirement

More than 40,000 Canadians filed “bare trust” tax forms this year, despite the government hitting the pause button on the new reporting requirements at the last minute.

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 trust relationships can be complex, others can be rather simple — such as a shared bank account or a parent being named on the title of a child’s house in order to help them qualify for a mortgage.

The new requirements were introduced as part of the government’s 2022 fall economic statement and were set to be enforced this past tax season. Anyone with a bare trust was required to file a T3 tax return form naming the trustees, beneficiaries and settlors of each trust by April 2.

But in late March, with just days to go before the deadline, the Canada Revenue Agency (CRA) announced that bare trusts would no longer need to be reported this year.

Last week, Minister of National Revenue Marie-Claude Bibeau told the House of Commons that 44,034 Canadians still filed bare trust tax forms. Her statement came in response to a written question from Conservative MP Gary Vidal.

John Oakey, a vice president with the Chartered Professional Accountants of Canada, said those numbers don’t surprise him. He said many of the accountants he spoke to who knew about the rule changes were preparing their clients’ forms well ahead of the eleventh hour pause.

“One of the things in our profession is when it comes to preparing a trust return, we spend the early months doing all the planning,” he said.

“You don’t wait until the very last minute and say, ‘Well, I’m going to wait until the actual due date,’ and hit send and file everything.”

The new rules were meant to target money laundering, terrorist financing and tax avoidance. But a number of Canadians who had rather simple bare trust relationships found themselves scrambling to file the proper forms.

Documents tabled in the House of Commons last month show the CRA was fielding hundreds of complaints and concerns from Canadians over the bare trust reporting requirement as the deadline approached.

A spokesperson for Bibeau’s office said the CRA will still process the T3 forms that were filed.

“We recognize that the introduction of this new reporting requirement had an impact on Canadians, and many did take necessary steps to fulfil their reporting obligations,” Simon Lafortune, Bibeau’s press secretary, said in an email.

Rules will apply next year

Oakey said the government didn’t do a great job of communicating the changes early on in the process. Despite the number of bare trust forms that were filed, Oakey said he suspects “a significant volume” of bare trusts were not reported.

“There are probably … hundreds of thousands of bare trust arrangements out there that people don’t even know that they’re party to because it is such an easily created relationship,” he said.

Lafortune said the requirements will apply next year and the government is working to make Canadians more aware of the new rules.

“We will be working with the Department of Finance to clarify this requirement and communicate with Canadians as more information becomes available,” he said.

MP Adam Chambers, the Conservative revenue critic, wrote to Canada’s taxpayers’ ombudsperson in April asking him to investigate how CRA handled the bare trust issue.

“If this recent experience is not addressed, we run the risk of repeating similar mistakes in the future and causing significant unnecessary stress and financial strain on taxpayers,” Chambers wrote to François Boileau.

In response, Boileau said his office heard from several Canadians with complaints about bare trust reporting and would be monitoring the issue.

“I share some of your concerns related to this situation,” Boileau wrote in response to Chambers’ letter. He added he was not ready to launch a formal investigation at the time.

“We will be in a better position to determine the course of action once we have all the necessary information,” he wrote.

Boileau’s office told CBC News on Friday that it is continuing to “gather more information from the CRA regarding bare trust reporting requirements,” but a formal investigation hasn’t been launched.