Last year, some taxpayers in Canada may have unnecessarily submitted “bare trust” forms to the Canada Revenue Agency, as the government considers further modifications to reporting requirements that could lead to another tumultuous tax season, according to a caution from an accountant.
In 2022, the government introduced new tax reporting regulations for trusts scheduled to be effective for the 2023 tax year. Although the rules aimed to combat issues like money laundering, terrorist financing, and tax evasion, many Canadians with basic bare trusts were required to complete complex forms.
In March 2024, just days before the filing deadline, the CRA decided to halt the reporting obligations for bare trusts due to an “unintended impact on Canadians.” The pause was extended last year as the Finance Department proposed adjustments to offer “certainty” to taxpayers.
A bare trust arrangement involves a trustee who holds legal ownership of an asset without beneficial ownership. The trustee’s role is limited to holding legal title, awaiting instructions from the beneficiary, as defined by the government.
Ryan Minor, a director at Chartered Professional Accountants of Canada, emphasized that the primary function of a bare trust trustee is to maintain legal ownership.
Unlike express trusts, which are intentionally established by lawyers at a client’s request, bare trusts can arise unintentionally, such as when a parent co-signs a mortgage for a child or when children are listed on a parent’s bank account for bill payments.
The Finance Department’s proposed changes in August would exempt specific bare trusts, including scenarios like joint ownership of a bank account by spouses and a parent co-signing a child’s mortgage by being named on the property title.
According to a department spokesperson, these exemptions aim to provide certainty to parties regarding their non-obligation to submit a beneficial ownership return.
The proposed changes may also exempt cases where an adult child is named on an elderly parent’s bank account, provided the account value is under $250,000.
Over 44,000 submitted forms before sudden halt
While supportive of the proposals, Minor suggested that further clarifications are necessary to address situations where taxpayers must file despite the improvements.
Despite the CRA’s temporary suspension, over 44,000 taxpayers, some assisted by tax professionals, submitted bare trust forms in 2024.
Minor indicated that some filers could qualify for the proposed exemptions and urged more consultations to prevent such “wasteful” outcomes.
