T3 Filings: What Will Come of the Ombudsperson Review?

Evelyn Jacks

New T3 filing requirements for trusts were formally enacted beginning in the 2023 taxation year.  The  rollout of this program quickly became a broad-based disaster, as informal and bare trusts were a surprise inclusion in the requirements. Over 52,000 T3 returns and new Schedule 15s were filed before the government had a sudden change of heart; cancelling the requirement for bare trusts just hours before the filing deadline. Now, the Taxpayer’s Ombudsperson is looking into the situation to determine if taxpayer rights were breached.

A little background:  Previously, trusts were not required to file unless they had earned income in a given taxation year.   The Ombudsperson noted that for most trust types, including bare trusts, the deadline to file a T3 Return and Schedule 15 for 2023 was March 30, 2024.

But, on late in the day on March 28, 2024, the last business day before the filing deadline and the day before the Easter long weekend, the CRA announced it will not require bare trusts to file a T3 Income Tax and Information Return (T3 return), including Schedule 15, for the 2023 tax year, unless directly requested by the CRA.

Consider the needless compliance costs for taxpayers who filed 52,000 T3 returns. At an average charge $250 - $500 each this math works out to $13M to $26M of wasted dollars for inflation-weary Canadians; this on the heals of the UHT filing debacle in October.  That is to say nothing about the extra stress for accountants and the fact that many may have written off work they started but could not collect for given the late announcement.  These professionals had to spend unrecoverable money on software, training and labor to manage the requirements.

What the Ombudsperson is looking Into.  Specifically, the Ombudsperson will review whether two taxpayer rights were breached:

• Right #6, “You have the right to complete, accurate, clear, and timely information.”
• Right #10, “You have the right to have the costs of compliance taken into account when administering tax legislation.”

The Ombudsperson wants to better understand the processes in place by speaking with stakeholders, including the CRA, and then may make recommendations on ways the CRA can prevent similar issues in the future, noting  “Right #10 of the Taxpayer Bill of Rights means that you have the right to expect that the CRA has taken into account the costs of compliance—the time, effort and expenses needed to file—when administering tax legislation. We will carry out our examination through the lens of this right, as well as the other taxpayer rights, for both bare trustees and representatives.” 

The Bottom Line.  Taxpayers cannot be expected to self-assess and comply with tax law that is not implemented in a comprehensible and timely fashion.  Nor can they arrange their affairs within the framework of such tax law, retroactively announced, to pay only the correct amount of tax – and no more.

The Ombudsperson may therefore also wish to expand that review into the handling of the Underused Housing Tax (UHT) filing requirements as well.  In a similar debacle, the government included, and then waived within hours of the filing deadline, the requirement to file for Canadian citizens who held residential property in a specified corporation, partnership or trust. 

However, it is Finance Canada that makes the law that CRA must administer.  That department should be held to account as well.

Additional Educational Resources.  To come up to speed on the new trust filing requirements, Knowledge Bureau offers a vocational  certificate course entitled Filing T3 Returns. Find out more and register for this course here.