Tax in the News: Investigation Into The CRA Bare Trust Reporting Requirement Rollout

The recent turmoil surrounding the Canada Revenue Agency’s (CRA) bare trust reporting requirement has highlighted significant issues in tax administration and policy implementation. While the CRA’s last-minute decision to pause the reporting requirement just days before the deadline has drawn much criticism, it is crucial to recognize that the responsibility does not solely rest with the CRA. The Department of Finance and government legislators should also be scrutinized for their roles in the policy’s design and rollout.

The CRA’s Bare Trust Reporting Requirement

A bare trust exists when a person has legal ownership of a property or asset but does not hold beneficial ownership. For the 2024 tax season, the CRA initially required anyone with a bare trust to file a T3 tax form, which was a significant change from previous years. This change was introduced as part of the government’s 2022 fall economic statement, aimed at combating money laundering, terrorist financing, and tax avoidance.

However, just days before the April 2 filing deadline, the CRA announced a pause on this new requirement, leading to widespread frustration among taxpayers and tax professionals. Many had already incurred substantial costs to comply with the new rules, only to find out that their efforts were unnecessary.

The Role of the CRA

The CRA’s handling of the bare trust reporting requirement has been criticized for its poor communication and timing. CBC News reported that the Taxpayers’ Ombudsperson, François Boileau, has launched an investigation into whether the CRA respected taxpayers’ rights, particularly the right to “complete, accurate, clear, and timely information” and the right “to have the cost of compliance taken into account.”

According to John Oakey, Vice President of Taxation at the Chartered Professional Accountants of Canada, the scope of this investigation should extend beyond the CRA’s implementation to include the policy’s design and legislative process. Oakey told CBC News, “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.”

The Department of Finance and Government Legislators

While the CRA’s execution of the policy was flawed, the Department of Finance and legislators also share the blame. The policy, introduced in the 2022 fall economic statement, was not adequately communicated or explained to the public. The broad scope of the reporting measures extended beyond targeting illicit activities, capturing information on average taxpayers with no involvement in money laundering or tax evasion.

Consultations with stakeholders, including tax professionals and organizations, were insufficient. Despite submissions from joint committees on taxation, including CPA Canada and the Canadian Bar Association, the policy’s rollout proceeded without adequate consideration of its practical implications.

Impact on Taxpayers and Professionals

The financial burden on taxpayers due to the last-minute policy reversal has been significant. CBC News reported that Patricia Brubaker from Toronto, who had her accountant file the T3 form for her bare trust, is facing an unexpected bill of approximately $700. Similarly, Norman Tollinsky from Thornhill paid roughly $1,000 for two T3 forms, only to discover that they were no longer required.

Tax professionals also faced substantial costs. They invested in training, software updates, and other resources to comply with the new legislation. The reversal not only wasted these resources but also damaged their credibility with clients.

“As a tax partner at an Alberta-based firm, we had completed many bare trust filings for clients to ensure compliance. Numerous additional filings were either completed and awaiting signature or in the final stages of being submitted to our clients for sign-off,” said Nizam Shajani, CPA, CA, TEP, LL.M (Tax), LL.B, MBA, BBA. “This was a cost to our clients and our firm, where we did not get paid for work done that was no longer required through a CRA press release. The lack of timely communication from the CRA resulted in significant financial losses and operational disruptions for both our clients and our practice.”

Moving Forward: A Call for Comprehensive Review

The investigation by the Taxpayers’ Ombudsperson should serve as a starting point for a broader review of how tax policies are developed and implemented. It is essential to ensure that the Department of Finance and legislators are held accountable for their roles in this debacle. Policies must be designed with clear, realistic implementation plans and should involve thorough consultations with stakeholders.

The government must also improve its communication strategies to provide taxpayers with timely and accurate information. This includes explaining the rationale behind new policies and ensuring that any changes are announced well in advance to avoid last-minute disruptions.

Conclusion

The CRA’s bare trust reporting requirement rollout has been a lesson in the complexities of tax policy implementation. While the CRA’s execution was flawed, the Department of Finance and government legislators must also be held accountable for their roles in this issue. A comprehensive review of the policy development and implementation process is necessary to prevent similar problems in the future and to restore trust in Canada’s tax administration system.

By addressing these issues holistically, we can work towards a more transparent, efficient, and fair tax system that respects taxpayers’ rights and minimizes unnecessary burdens on both individuals and professionals.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2024 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning service.

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