Exterior of CRA headquarters building
CRA / Government of Canada

The Taxpayers’ Ombudsperson is examining whether the Canada Revenue Agency (CRA) respected taxpayers’ rights in its administration of bare trust filing requirements for the 2023 tax year.

On March 28, 2024, just days before the April 2 filing deadline, the CRA announced it would not require bare trusts to file a T3 return, including Schedule 15, for the 2023 tax year unless the agency directly requested a taxpayer to do so.

“It is not just bare trustees that have been affected by the CRA’s last-minute announcement,” said François Boileau, Taxpayers’ Ombudsperson, in a release on Wednesday announcing a systemic examination. “Representatives also put in hours of work to understand the new requirements and file for their clients, only to find out that their efforts may have been for nothing.”

In an emailed reply to questions from Investment Executive sent before the ombudsperson’s announcement, the CRA said more than 52,000 trust returns had been filed for bare trusts for 2023, to date.

According to the release, several taxpayers, tax advisors and members of Parliament had reached out the Office of the Taxpayers’ Ombudsperson (OTO) since March 28 to express concerns regarding the CRA’s last-minute change to the bare trust filing guidance.

The OTO, an independent body with a mandate to examine CRA service issues, said it would be looking into whether the CRA respected service rights outlined in the Taxpayer Bill of Rights, including “the right to complete, accurate, clear and timely information” and “the right to have the costs of compliance taken into account when administering tax legislation.”

Based on its findings, the OTO may make recommendations on ways the CRA could prevent similar issues in the future, the release said.

The CRA has not provided guidance as to filing requirements for bare trusts for 2024 and future years.

In reply to questions from Investment Executive regarding 2024 bare trust filing requirements, the CRA said that “over the coming months, the CRA will work with the Department of Finance to further clarify its guidance on this filing requirement. The CRA will communicate with Canadians as further information becomes available.”

The 2024 filing deadline for trusts, including bare trusts, is March 31, 2025.

A bare trust exists when a trustee’s only duty is to transfer property to a beneficiary on demand.

The CRA exempted bare trusts from reporting requirements for 2023 “in recognition that the new reporting requirements for bare trusts have had an unintended impact on Canadians,” the agency said on March 28, and bare trusts wouldn’t have to file unless the CRA had made a direct request.

In mid-March, the CRA had announced it would not impose gross negligence penalties on taxpayers who fail to file a return for a bare trust on time for 2023 except in “the most egregious cases.” In December 2023, the CRA said it wouldn’t apply penalties — $25 per day late, with a minimum of $100 to a maximum of $2,500 — for filing a trust return and a Schedule 15 for bare trusts after the deadline.

The CRA told Investment Executive it had made no direct requests for bare trusts to file for 2023 since its relief announcement on March 28, nor has it imposed late-filing or gross negligence penalties in respect of 2023 bare trusts. However, it did confirm that “this proactive relief is for bare trusts only, and only for the 2023 tax year.”

Trust reporting and bare trusts

The federal government first proposed stricter trust reporting rules in the 2018 federal budget to help combat “aggressive tax avoidance, tax evasion, money laundering and other criminal activities” and as part of Canada’s international commitment to the transparency of beneficial ownership.

The expanded trust reporting rules were originally meant to be effective for the 2021 tax year, but the effective date was delayed twice, pending the passage of enabling legislation late in 2022. The new legislation is effective for trusts with year-ends on Dec. 31, 2023, and after.

Under previous legislation, generally only trusts with taxes payable for the year or those that disposed of capital property needed to file an annual trust income tax return (T3). Under the expanded reporting requirements, express trusts (as opposed to those created by law) as well as bare trusts had to file a T3: Trust Income Tax and Information Return, and a Schedule 15: Beneficial Ownership Information of a Trust, with the CRA on an annual basis.

The new rules require trusts to identify all beneficiaries, trustees, settlors and/or protectors of the trust, including their addresses, dates of birth and taxpayer identification numbers, such as social insurance numbers.

Certain trusts are excluded from the expanded rules. These include graduated rate estates; qualified disability trusts; mutual fund trusts and registered plans; trusts in existence for less than three months; and trusts with less than $50,000 in asset value — if those assets consist of only cash and securities traded on a designated exchange (and other certain assets).

In addition to the existing penalty for failing to file a T3 return on time — $25 a day, with a minimum penalty of $100 to a maximum of $2,500 — the new reporting rules introduce an additional penalty for deliberately not filing or for gross negligence: $2,500 or 5% of the property’s value, whichever is greater.

The T3 and Schedule 15 filing deadline for most trusts for 2023 was March 30, 2024. Since that date fell on a Saturday, the CRA considers a T3 return filed on time if the CRA received it, or it was postmarked, on or before April 2 (the next business day).