By Terrance S. Carter and Adriel N. Clayton

The Office of the Taxpayers’ Ombudsperson released its report on March 5, 2025, titled ”Unintended Consequences: Bare Trusts - Lessons learned from the Canada Revenue Agency’s administration of burdensome tax” (the “Report”) examining the Canada Revenue Agency’s (the “CRA”) administration of new trust reporting requirements, particularly as it relates to the timing of the announcement by the CRA on March 28, 2024, to exempt bare trusts from reporting requirements for the 2023 tax year. The Report highlights key challenges in tax administration and the unintended consequences for taxpayers and tax professionals that occurred. As well, the Report underscores the underlying confusion concerning what a “bare trust” is. This Report was prepared following the Ombudsperson undertaking an extensive examination of these issues, as reported in Charity & NFP Law Bulletin No. 528.

As detailed in Charity & NFP Law Bulletin No. 528, the Government of Canada introduced extensive new trust reporting requirements, including the filing of a T3 Income Tax and Information Return and Schedule 15 for bare trusts, which also have application to charities and not-for-profits. However, on March 28, 2024, the last business day before the filing deadline, the CRA announced that bare trusts would not be required to file for the 2023 tax year unless specifically requested to do so by the CRA. The Report references in its Chronology of Key Events that on October 29, 2024, the CRA subsequently announced that it would also not require bare trusts to file a T3 return, including Schedule 15, for the 2024 tax year unless directly requested by the CRA.

The Report indicates that the March 28, 2024, announcement by the CRA was generally welcomed but also raised concerns, particularly regarding:

• The lack of clear communication about filing requirements;
• Increased compliance costs for taxpayers and professionals; and
• The late exemption announcement and its impact.

The Ombudsperson’s Report found that while the CRA took steps to provide guidance, the timing of its exemption decision caused unintended confusion and compliance burdens. Ultimately, the Report concludes that:

• “The CRA was tasked with administering legislation that was burdensome”; and
• “The [CRA] did not provide clear and timely information when it could have”.

In particular, with regard to bare trusts, the Report raises the questions of “what is a bare trust, who are the parties to a bare trust arrangement, and whether they are required to file a T3 return”, and concludes that “there are no clear answers”. Further to this, the Report states that the Income Tax Act does not define what a bare trust is, nor does the new trust reporting legislation. While the CRA provided one example to illustrate what a bare trust might be, the Report states that the example is “not […] relatable”.

As well, it is worth nothing that the Report indicates that:

“[…] it is up to the CRA, in its administration of tax legislation, to provide guidance about the legislation. That being said, it is ultimately the taxpayer’s responsibility to understand or be informed of the law and take reasonable steps to comply with it.

However, it appears in this case there was additional complexity: Taxpayers had to first establish if the arrangement they were involved with was a trust and then determine if the reporting requirements applied.”

In response to the Ombudsperson’s Report, the Department of Finance Canada has committed to reviewing and clarifying the bare trust reporting rules to ease the administrative burden. The Report also includes five recommendations for improving CRA service, particularly when legislative changes create new compliance costs.