The Taxpayers' Ombudsperson investigates CRA's last-minute reversal, addressing taxpayer and advisor concerns
The Taxpayers' Ombudsperson, François Boileau, has initiated a systemic examination into the Canada Revenue Agency's (CRA) handling of bare trust filing requirements for the 2023 tax year.
The investigation will determine whether the CRA respected taxpayers' rights in this matter.
The government introduced new reporting requirements for trusts, including bare trusts, with a filing deadline of March 30. However, on March 28, the CRA announced that bare trusts would not need to file a T3 Income Tax and Information Return for 2023 unless specifically requested by the CRA.
This last-minute announcement has sparked concerns among taxpayers, representatives, and members of Parliament.
Many taxpayers had already paid representatives to prepare their filings, leading to financial losses. Representatives also invested time and resources into training, software updates, and research to comply with the new requirements.
While some organizations welcomed the decision, others were frustrated by the timing and lack of clear communication.
The Office of the Taxpayers' Ombudsperson (OTO) is examining the clarity and timing of the CRA's communication and the cost of compliance for taxpayers and their representatives. The investigation will assess whether the CRA upheld service rights outlined in the Taxpayer Bill of Rights, specifically:
- Right #6: You have the right to complete, accurate, clear, and timely information.
- Right #10: You have the right to have the costs of compliance taken into account when administering tax legislation.
Wealth Professional reported from April 19 that the CRA’s reversal left clients confused and damaged the CRA’s reputation. The initial requirement for T3 filings was motivated by the overlaps between trusts and real estate ownership.
Even beneficiaries of informal trusts had to file a T3, leading to extensive preparation efforts.
Kevin Burkett, a tax partner at Burkett & Co., explained that advisors spent months preparing clients for the filing requirements, only to find out that the filings were unnecessary just two days before the deadline.
He noted that the broad definition of bare trusts meant significant legwork for accurate T3 filings.
Burkett highlighted that clients want to remain compliant, and advisors strive to help them. However, the CRA's reversal has made compliance more challenging and may lead to difficulties in future tax filings.
He compared this situation to the rollout of the underused housing tax, where broad language and insufficient implementation led to confusion.
The Taxpayers' Ombudsperson's examination will involve speaking with stakeholders, including the CRA, to understand the processes in place. The Office aims to carry out the review fairly and impartially, with the potential to recommend improvements to prevent similar issues in the future.
The Office of the Taxpayers' Ombudsperson operates independently from the CRA and assists Canadians who feel they are not receiving appropriate service from the CRA.
The Ombudsperson advises the Minister of National Revenue on service-related matters and ensures that the CRA respects service rights outlined in the Taxpayer Bill of Rights.
François Boileau emphasized the importance of considering the costs of compliance, stating: “Right #10 of the Taxpayer Bill of Rights means that you have the right to expect that the CRA has taken into account the costs of compliance—the time, effort, and expenses needed to file—when administering tax legislation. We will carry out our examination through the lens of this right, as well as the other taxpayer rights, for both bare trustees and representatives.”
Burkett expressed concern that the CRA’s decision has harmed the credibility of future tax policy, leading to potential pushback against compliance efforts. He stressed the importance of a conservative approach to tax to best serve clients in the long term.
The ongoing examination by the Office of the Taxpayers' Ombudsperson seeks to address these issues and ensure future tax policies are implemented more effectively and transparently.
