Taxpayers’ ombudsperson commences investigation into CRA’s reporting rules of bare trusts
The Office of the Taxpayers’ Ombudsperson has launched a formal investigation of how the Canada Revenue Agency handled new reporting rules around bare trusts that took effect – and were later suspended – for the 2023 tax year.
François Boileau, the ombudsperson, announced in a news release on Wednesday that his office has opened a systemic examination of the CRA’s conduct after the agency largely scrapped the controversial filing requirements on March 28, the last business day before this year’s April 2 cut-off date for submitting income-tax returns for trusts.
The last-minute about-face caused anger and frustration among scores of Canadians and tax advisers who had already spent considerable time and money to comply with the complex new rules.
A systemic examination can result in a high-profile censure of the CRA, with findings and recommendations published in a public report and presented to the Minister of National Revenue.
“It is not just bare trustees that have been affected by the CRA’s last-minute announcement.
Representatives also put in hours of work to understand the new and file for their clients, only to find out that their efforts may have been for nothing,” Mr. Boileau said in a statement.
The tax agency has struggled to administer new, stricter information-sharing requirements for trusts that were meant to help combat money laundering and tax dodging. Among other things, the rules established a new requirement, starting in the 2023 tax year, for Canadians to file tax returns for bare trusts, which are often informal arrangements and were previously exempt from filing.
Many people discovered that they may be deemed under common law to be trustees of a bare trust and obliged to submit the new tax returns or risk steep penalties even if they’d never intentionally set up a trust. Those affected included, in certain cases, parents who had added their names to the titles of their adult children’s homes to help them qualify for mortgages, and people who had their names on elderly relatives’ financial accounts.
Many taxpayers reported spending hundreds of dollars on tax accountants and lawyers to assess whether they had a bare trust and complete the complicated returns. Tax preparers also said they devoted considerable money and time to train staff on the onerous new rules.
But on March 28, the CRA announced it would no longer require returns for bare trusts for the 2023 tax year, unless the agency makes a direct request for those files.
Mr. Boileau’s office said it will examine whether the CRA violated taxpayers’ right to have complete, accurate, clear and timely tax information and the right to have the costs of compliance taken into account when administering tax legislation.
In a letter responding to a request by Conservative MP Adam Chambers for an investigation, Mr. Boileau had said in April that his office was conducting preliminary research into the CRA’s conduct over bare trusts but hadn’t yet decided whether it would proceed with a systemic examination.
This article was first reported by The Globe and Mail
