Bare trusts not required for 2024 tax reporting rules, CRA says
The Canada Revenue Agency says it will not require bare trusts to adhere to updated tax-reporting rules for the 2024 tax year, as taxpayers and accountants await final amendments to a much-criticized policy.
The federal government had introduced new reporting rules around trusts in 2022 to ensure tax compliance, but exempted taxpayers from filing the paperwork for 2023 after accountants said the new rules’ effect on bare trusts is too wide-reaching and too complicated for average Canadians to comply with.
The government has since been working on new exemptions for bare trusts and began proposing draft amendments in August.
Ryan Minor, director of tax for Chartered Professional Accountants of Canada, which represents the profession at the national level, said Tuesday‘s announcement to exempt bare trusts again was welcome and expected because of rising uncertainty around the current minority government’s longevity, or its ability to pass bills.
“If that technical amendment doesn‘t get passed or it gets passed much later than the deadline, we‘d be stuck with the old rules and back where we started,” said Mr. Minor.
“The challenge with this kind of legislation is carving out situations where the information is really meaningless to law enforcement.”
A trust is a legal relationship in which someone called a trustee holds property for another person known as the beneficiary. In a bare trust, the trustee can only act on the instruction of the beneficiaries.
Hugh Neilson, director of taxation services at Kingston Ross Pasnak LLP, says any number of ordinary situations could be considered a bare trust, such as a parent who is on their son‘s mortgage title to act as a guarantor or even a child whose bank account has their parent’s name on it.
Part of the criticism around the new rules was that assessing whether a bare trust exists could require extensive information gathering and complex legal interpretations.
A survey conducted earlier this year by The Globe and Mail through the Carrick on Money newsletter found that taxpayers were spending hundreds or even thousands of dollars in legal and accounting fees around bare trust reporting before the 2023 exemptions were enacted.
It’s why bare trust holders will now be exempt from having to file what is known as a T3 Trust Income Tax and Information Return, while the government hashes out what kind of bare trusts should be required to file tax paperwork.
Mr. Neilson called the exemption an “excellent” move by the CRA to provide more time for the government to iron out the issue and provide some sense of stability for those awaiting new regulations.
“Credit to them for being proactive on this one,” said Mr. Neilson.
This article was first reported by The Globe and Mail
