The Office of the Taxpayers’ Ombudsperson is reviewing whether the Canada Revenue Agency violated certain rights of taxpayers in its handling of new tax rules for trusts, which saw the agency scrap onerous reporting obligations for bare trusts just days before the filing deadline.
In a letter responding to Conservative MP Adam Chambers, Taxpayers’ Ombudsperson François Boileau said his office is “carrying out preliminary research” after receiving many expressions of concern from taxpayers and their representatives since the CRA announced the last-minute about-face on March 28.
In the letter, Mr. Boileau said his office hasn’t decided yet whether to launch a formal, systemic examination of the matter. Such an investigation can result in public censure of the CRA, with the findings and recommendations presented to the Minister of National Revenue and published in a public report.
But Mr. Boileau also wrote that “at first glance, it appears as though the CRA has not respected several rights under the Taxpayer Bill of Rights,” referring to a list of service and fairness standards the tax agency must uphold.
Canada’s tax agency has struggled to administer new, complex information-sharing obligations that went into effect this tax season stemming from legal amendments meant to improve transparency around trusts. Among other things, the rules for the first time required taxpayers to file tax returns for bare trusts, which were previously exempted from filing.
The changes resulted in onerous new reporting requirements for many Canadians with common and informal family financial arrangements that are in some cases considered bare trusts. Among those affected were many parents who had added their names to the titles of their children’s homes to help them qualify for mortgages, and some people who had their names on elderly relatives’ financial accounts.
Because filing a trust return can be complicated and assessing whether an arrangement constitutes a bare trust can involve nuanced interpretations of common law, many taxpayers with ordinary incomes and circumstances reported spending hundreds – and sometimes thousands – of dollars on tax accountants and lawyers trying to comply with the rules.
Eventually, the CRA announced late last month, just days before the April 2 filing deadline for trusts, that it would not require Canadians to submit bare-trust returns this year, unless the agency makes a direct request for the files.
While critics of the bare-trust rules have welcomed the change, saying it brought relief to those who hadn’t filed yet, they have also lambasted the government for waiting until the 11th hour to walk back the reporting requirements.
A recent online survey of small and medium accounting firms, conducted by Joseph Devaney, a director at the financial education platform Video Tax News, estimated that tax preparers and their clients may have spent almost $1-billion to complete 2023 bare-trust returns that are now no longer required.
Writing to the taxpayers’ ombudsperson in early April, Mr. Chambers, the Conservative critic for national revenue, had asked for a review of the CRA’s conduct over the bare-trust rules.
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Kaitlyn Temmel, a spokesperson for the Office of the Taxpayers’ Ombudsperson, confirmed via e-mail that the office hasn’t decided yet whether it will proceed to a systemic examination. Currently, the office is conducting an initial analysis focused on whether CRA respected taxpayers’ right to complete, clear and timely information and their right to have their compliance costs taken into account when administering tax legislation, Ms. Temmel said.
In the letter to Mr. Chambers, Mr. Boileau said his office would also look at how the CRA is treating taxpayers who have already filed their trust returns.
In an e-mailed statement, Minister of National Revenue Marie-Claude Bibeau stressed the importance of combatting tax avoidance and tax evasion and ensuring that taxpayers can meet their reporting obligations.
Lifting the filing requirements for bare trusts for one year, Ms. Bibeau said, will provide more time to ensure Canadians understand the new rules.
“We will also work with the Department of Finance to clarify the requirements and ensure that they do not exceed what is necessary to achieve our objectives,” she said.
Erica Alini