Tax in the News: Navigating the Quagmire of CRA’s New Trust Filing Rules

The recent rollout of new tax-filing requirements by the Canada Revenue Agency (CRA) underscores a classic case of good intentions paved with bureaucratic inefficiency. Aimed at curtailing tax evasion and money laundering, the CRA has broadened its reach, ensnaring everyday Canadians in a complex web of reporting obligations. For the first time, individuals managing finances in partnership with others, such as joint bank or investment accounts with parents, are required to navigate the murky waters of bare trust disclosures through the filing of a Trust Income Tax and Information Return and a T3 Schedule 15. This move, albeit well-intentioned, is emblematic of the government’s penchant for imposing burdensome regulations that complicate rather than simplify the lives of its citizens.

The new tax filing requirements concerning bare trusts cast a wide net, affecting a diverse group of Canadians across various life stages and financial arrangements. Seniors, for instance, who have added a child to their bank account for assistance in managing their finances during their senior years, find themselves navigating this cumbersome reporting process. Similarly, parents administering a child’s account, perhaps established to manage savings or investments for the child’s future, are also impacted. This legislation extends its reach to families where parents have co-signed mortgages and added their names to their adult children’s property titles to facilitate home ownership amidst soaring prices and stringent lending criteria. Additionally, adults who have set up informal trust accounts to invest on behalf of a minor child, or those assisting aging parents by managing their financial affairs, are encapsulated within these new rules. Each of these scenarios, from familial support structures to strategic financial planning, underscores the broad and unintended consequences of a policy ostensibly aimed at curbing tax evasion and money laundering, yet ensnaring ordinary Canadians in its complexity.

The complexities involved in filing these forms are not trivial. Even finding a professional accountant willing and able to undertake this task is proving to be a Herculean effort for many. Although Shajani CPA has stepped into the fray, offering to file T3s at a starting cost of $350, the fact that Canadians are forced to incur additional expenses for what is essentially a disclosure exercise is problematic. Considering this exercise is intended solely for information gathering, the CRA’s approach is far from user-friendly and lacks clarity.

One would expect the CRA to provide a comprehensive, plain-language guide to assist Canadians in understanding these new measures and their implications. A simplified T3 form for bare trusts would have been a thoughtful addition. Instead, taxpayers are faced with a generic five-page T3 return, designed to cover a broad spectrum of trusts, and an 86-page technical guide that offers little in the way of clarity. The requirement to provide non-existent documentation for bare trusts further illustrates the disconnect between the CRA’s expectations and the reality of how Canadians manage their finances.

The introduction of bare trust reporting has caught many by surprise, revealing a glaring lack of communication and guidance from the CRA. For arrangements created to facilitate family financial management, the sudden obligation to disclose to the CRA has been met with dismay and frustration. The trustee, typically the individual managing a joint account, bears the brunt of this filing requirement, a mandate that seems excessive for mere administrative arrangements.

Moreover, the penalties for non-compliance — $25 for each day late, with a minimum of $100 and a maximum of $2,500 — are punitive and reflect a heavy-handed approach to policy enforcement. This stance is further compounded by the looming deadline for filing, although the CRA has indicated a leniency in penalty assessment for this cycle. The expectation of annual filings, including updates on changes, adds another layer of complexity to what should be a straightforward process.

The new filing requirements for bare trusts could have wide-reaching implications, affecting not just those managing accounts for relatives but also parents listed on property titles to support their children’s mortgage applications, and adults investing on behalf of minors. The CRA’s failure to clearly delineate who is affected by these rules has led to confusion and cautious advice from tax professionals.

The CRA would be wise to heed a simple piece of advice: delay the bare trust T3 filing requirement by a year and devote the interim to developing a simplified filing system accessible to all. It is unreasonable to compel Canadians to engage and pay for professional services to comply with a regulation that should be straightforward. In the meantime, for those uncertain about their filing obligations, the prudent course may indeed be to file. Yet, this scenario starkly illustrates the need for a shift in how the government and its agencies impose regulatory burdens, highlighting a systemic bias that prioritizes penalization over practicality and clarity.

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.