By Terrance S. Carter and Adriel N. Clayton

The Office of the Taxpayers’ Ombudsperson recently released a report examining the Canada Revenue Agency’s (CRA) administration of new trust reporting requirements, particularly in relation to bare trusts. The findings highlight key challenges in tax administration and the unintended consequences for taxpayers and professionals. This report was prepared following the Ombudsperson’s systemic examination, discussed in our Charity & NFP Law Bulletin No. 528.

As also explained in Charity & NFP Law Bulletin No. 528, the Government of Canada introduced new trust reporting requirements, including the filing of a T3 Income Tax and Information Return and Schedule 15 for bare trusts. However, on March 28, 2024, the last business day before the filing deadline, the CRA announced that bare trusts would not be required to file unless specifically requested.

The report indicates that this decision was welcomed by many but also raised concerns, particularly regarding:

• The lack of clear communication about filing requirements;
• Increased compliance costs for taxpayers and professionals; and
• The late exemption announcement and its impact.

The Ombudsperson’s report found that while the CRA took steps to provide guidance, the timing of its exemption decision caused unnecessary confusion and compliance burdens. Ultimately, the report concluded that:

• The CRA was administering legislation that was inherently complex and burdensome;
• The agency did not provide clear and timely information in all cases; and
• Despite efforts to mitigate compliance costs, the overall burden on taxpayers remained significant.

In response, the Department of Finance Canada has committed to reviewing and clarifying the bare trust reporting rules to ease the administrative burden. The report also includes five recommendations for improving CRA service, particularly when legislative changes create new compliance costs.