Tax experts are warning it may be tough for Canadians who don’t already rely on an accountant to find one this tax season.
Several factors are contributing to a mismatch between the demand for professional tax advice and the supply of it, with new filing requirements for trusts being the latest development that is exacerbating the trend, according to Chartered Professional Accountants of Canada, which represents the profession across the country.
“It will be difficult for individuals to find CPAs to do the work for them unless they already have an established relationship,” said John Oakey, vice-president of taxation at CPA Canada.
Accountants are racing against a March 30 deadline to help existing clients satisfy new filing obligations for trusts. That includes arrangements known as “bare trusts” for which there isn’t a requirement to sign documents to set up the trust or formally establish the parties’ intentions.
A trust is a legal structure that separates legal ownership and beneficial interest. It is created when property is transferred by a settlor, who owns it, to a trustee, who holds legal title to it for the benefit of another person or persons called the beneficiaries. In the case of bare trusts, the trustee has no independent powers or responsibility over the property and can only act at the direction of the beneficiary.
New rules require that bare trusts, with few exceptions, file an annual return and disclose beneficiaries, among other information. The federal government has also increased reporting obligations for what are known as “express trusts,” which are created with the settlor’s express intent.
The new rules are creating a substantial amount of additional work for accountants during an already busy tax season, Mr. Oakey said. The deadline for trust-related filings is just a month earlier than April 30, the date by which most people must file their income tax and benefit returns. (This tax season, Canadians have until April 2, the first business day after March 30, to satisfy their trust filing requirements.)
One of the main issues is that many Canadians are likely unaware that they may be part of what could be deemed to be bare trust, according to Mr. Oakey.
For example, accountants have warned that, in certain scenarios, Canadians who had their names added to the title of a family member’s home or to a relative’s bank or investment account could be deemed to be part of a bare trust that is subject to the new requirements, even if they never explicitly set up a trust.
This is forcing accountants to engage in the time-consuming exercise of quizzing clients to see whether they’re part of arrangements that could be considered bare trusts, Mr. Oakey said.
“I’m going to go through my client list and have a documented conversation, one by one by one,” about bare trusts and the new requirements, said Alexandra Spinner, a partner at Crowe Soberman LLP.
Ensuring compliance can be tricky even for CPAs because establishing what constitutes a trust subject to the new filing rules can require wading into the complexities of trust law, Mr. Oakey said.
New disclosure obligations for express trusts are also resulting in a “tremendous amount of time being spent on compliance,” Ms. Spinner said.
Many CPAs “don’t have capacity to take on new clients,” she added, speaking in general about the profession.
The new measures around trusts come on top of a slew of new tax-filing requirements, including a federal tax on housing that is deemed to be underused or vacant, and many recent tax rules on short-term rentals. This has increased the tax-season workload for accountants and created a greater need for tax-related services, Mr. Oakey said.
The supply of people joining the CPA profession isn’t keeping up with that higher demand for tax advice, he said, adding that more firms are choosing to focus on serving businesses and corporations rather than individuals.
For Canadians who can’t find an accountant but require help with trust-related tax issues, the options are limited. Tax preparation firm H&R Block offers all services needed to comply with the new filing rules for trusts, said Yannick Lemay, a senior tax expert at the company.
However, services provided by tax software giant TurboTax and online tax-filing platform Wealthsimple Tax do not currently include trust income tax and information returns.
The Canada Revenue Agency is waiving late-filing penalties for bare trusts for the 2023 tax year. But no relief applies in cases in which the agency deems that taxpayers failed to file a return knowingly or because of gross negligence, or if they provided false statements or withheld information.
Erica Alini