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The Canada Revenue Agency should never be in the news at this time of year.

A good spring for the CRA is quietly processing tax returns, answering phones in a timely way and keeping its online services running smoothly. A bad spring is what you’re seeing now: The CRA doing all the right things while generating headlines about its mishandling of the new rules for reporting bare trusts.

The CRA dumped the far-reaching new rules on taxpayers without proper explanation, then ignored a backlash until the very last minute. The bare trust fiasco is a symbol of government overreach and ineptitude, and it needs to be fixed properly. Here’s how to do it.

To start, we need more clarity on which financial arrangements constitute a bare trust and which do not. The CRA will probably need to work with the federal Department of Finance to simplify the policy for taxpayers.

“CRA has tried to do it, but they can’t give any clarity because it’s so complicated,” said Joseph Devaney, a chartered professional accountant and director at Video Tax News.

A bare trust is a financial arrangement involving a trustee who holds legal title to property and follows instructions from another individual who has beneficial ownership and is considered the beneficiary.

It’s the trustee who must report a bare trust, which can be as commonplace as a joint bank or investment account where an adult child helps manage an aged parent’s day-to-day finances. Parents listed on the title of a child’s property to help qualify for a mortgage can also be in a bare trust situation, while spousal bank accounts should not be considered a bare trust.

The CRA initially said a T3 trust income tax and information return had to be filed by April 2 to report bare trusts for the 2023 tax year, then suddenly suspended that requirement late last week. Many taxpayers had already complied with the new rule, some at a cost of hundreds of dollars or more paid to accountants and tax preparers.

The T3 is a complicated form designed for elaborate trust arrangements. A simplified T3 for bare trusts would be a welcome change, but Mr. Devaney has a better idea: adding a bare trust reporting section to the widely used T1 tax form. This would be a way for the CRA to acknowledge that bare trust reporting affects a wide swath of people.

Concise, plain-language instructions for using the T3 would also be helpful. For example, the T3 asks for a copy of the trust document, which often doesn’t exist for informal bare trusts involving family members helping each other out. If you don’t have a trust document, there is nowhere on the T3 to spell out the nature of the trust arrangement.

Instructions published online by the CRA ask you to submit a separate summary of a bare trust if there is no trust document, but you could easily miss this guidance because it’s buried under reams of other information.

Another suggestion from Mr. Devaney is to exempt more bare trusts from having to file to the CRA. Bare trusts with assets of $50,000 or less are currently exempt, providing they hold bank accounts and other selected assets.

He estimates that an increase to $100,000 for all kinds of assets would reduce required filings by more than 95 per cent. A higher exemption would also help the government zero in on the tax evaders it’s actually targeting through the bare trust reporting requirements.

One more way to narrow the scope of bare trust reporting would be to require it solely for people in the top tax bracket, Mr. Devaney said.

The CRA has produced an online guide for filing trusts, including bare trusts, and it has staff available by phone to answer questions. But the complexity of the T3 and an associated schedule 15 form are such that many people paid for help with the forms.

Mr. Devaney sees little chance of the CRA offering some kind of compensation for those costs. “I think people should send their bill to their MP and ask them what should be done about it,” he said. “Make decision-makers aware of the implications of not thinking things through.”

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