The bare trust debacle shows the CRA needs to learn to respect taxpayers

financialpost.com:

One of my favourite vocalists of all time is the Queen of Soul Aretha Franklin. I particularly loved her soulful style which was on great display during one of her greatest anthems Respect. The way she spelled out the words of “respect” during the song was classic.

That song instantly came to mind last week when the Canada Revenue Agency said bare trusts would now be exempt from the new trust reporting requirements that have been much lamented. While that announcement was certainly welcome, it came just five days before the filing deadline for trusts.

In the meantime, tax professionals and trust taxpayers have been struggling mightily with the new trust reporting regime (which requires significant and invasive disclosures of trust beneficiaries, settlors and trustees). These “new” rules were first proposed in the 2018 federal budget to come into effect for the 2021 taxation year, but were delayed twice and so the 2023 taxation year is the first time they are law.

However, the Department of Finance in 2022 added a surprise reporting requirement to the draft legislation that “bare trusts” (a type of trust akin to an agency relationship and is ignored for all purposes of the Income Tax Act) also need to be reported.

There are hundreds of thousands of bare trust relationships in existence in Canada, with most of them being very benign. The Department of Finance was presented with significant feedback as to why bare trusts should be exempt from the pending reporting requirements. However, such feedback was simply ignored.

The CRA was tasked with administering the new reporting rules and they, along with the tax practitioner community, mightily struggled to determine whether a legal relationship was a trust and/or a bare trust