CRA watchdog looking into rollout of 'bare trust' reporting requirement

Canada's taxpayer ombudsperson announced Wednesday that he's looking into whether the Canada Revenue Agency's rollout of a new "bare trust" reporting requirement respected taxpayers' rights.

A bare trust relationship is one where a person has legal ownership of a property or asset but doesn't hold beneficial ownership. Some bare trust relationships can be simple, like a parent being named on the title of a house to help a child qualify for a mortgage.

New reporting rules for the 2024 tax season initially required anyone with a bare trust to file a T3 tax form, until the CRA abruptly announced it would be pausing the reporting measures.

In a news release, the office of Taxpayers' Ombudsperson François Boileau said he'll look into the matter, adding that many bare trustees reported they already had paid representatives hundreds of dollars to meet the filing obligations that were later waived by the CRA.

"Based on the information received so far, the OTO is launching a systemic examination into the clarity and timing of the CRA's communication and into the cost of compliance issues for taxpayers and their representatives," Boileau's office said.

In early June, 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.

The Office of the Taxpayers' Ombudsperson (OTO) said its examination will look into whether the CRA "respected service rights" outlined in the Taxpayer Bill of Rights.

The OTO said it will consider the right to "complete, accurate, clear and timely information" and the right "to have the cost of compliance taken into account when administering tax legislation."

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.

Tax expert questions investigation's scope

John Oakey, a vice president of taxation with the Chartered Professional Accountants of Canada, said the announcement is "good" news but he has questions about the scope of the investigation.

"If the scope is only to look at how [the CRA] handled the implementation of the rules around bare trusts, then the scope is too narrow," he said.

The investigation should also consider how the policy was designed and debated in the House of Commons, Oakey added.

Oakey said the ombudsperson also should also consider what kinds of consultations were done with various stakeholders.

"This is where hopefully [the OTO] can expand the scope beyond the Canada Revenue Agency," he said.

He said a joint committee on taxation with CPA Canada and the Canadian Bar Association sent in submissions to the Department of Finance in 2018 and 2022.

CPA Canada also followed up with the minister of national revenue's office in February 2024 to advise there were problems with bare trusts complying with the reporting requirement, Oakey added.

The OTO said that based on the findings of the examination, the ombudsperson "may make recommendations on ways the CRA can prevent similar issues in the future."