Tens of thousands of taxpayers who filed bare trust returns for 2023 — the tax year for which the Canada Revenue Agency (CRA) provided an 11th-hour filing reprieve — are at risk of a Schedule-15 penalty when they file for 2026 or a subsequent tax year.
The risk arose because the CRA didn’t initially keep these bare trusts’ Schedule-15 information. Avoiding the penalty will add to tax practitioners’ already-significant workload when filing 2026 trust returns — and the irony was noted.
“The taxpayers and accountants who scrambled to be fully compliant from day one are the ones being penalized with extra administrative hurdles to deal with the CRA’s system issues,” Emily Mantle, founder of Compass CPA in Sudbury, Ont., said in an email.
The Schedule-15 penalty risk “increases the workload for T3 return preparers within an already tight filing window,” given that bare trusts must be identified for 2026 reporting, “and creates more opportunities for errors,” Michael Kulbak, principal of Kulbak Trust Solutions in Mississauga, Ont., said in an email.
Expanded trust reporting, effective for the 2023 tax year, includes detailed beneficial ownership information on Schedule 15. Bare trusts were exempt from the reporting after the rules generated confusion, and exemptions are now in place that will cover some common bare trust situations. As announced last fall, affected bare trusts must comply with the reporting for tax years ending on or after Dec. 31, 2026.
But plenty of people filed bare trust returns for the 2023 tax year, because the CRA announced a filing reprieve for bare trusts only one business day before the filing deadline; plus, expanded filing exemptions weren’t legislated at the time.
An estimated 54,400 T3 returns were filed for bare trusts for the 2023 tax year, CRA spokesperson Benoit Sabourin said in an email, and 3,740 were filed for the 2024 tax year.
“Because the CRA paused the reporting requirement at the 11th hour, many had already filed those returns to protect from the exceptionally harsh gross negligence penalties associated with non-compliance,” Mantle said.
For the 2023 tax year, the CRA had said it would waive the late-filing penalty for bare trusts and apply only the penalty for failing to file due to gross negligence, which is the greater of $2,500 or 5% of the highest amount of the trust property’s fair market value at any time in the year.
Now, 2023 bare trust return filers are at risk of a Schedule-15 penalty if they must file for 2026. This late-filing penalty is $25 a day, from a minimum of $100 to a maximum of $2,500.
How to avoid the penalty
Generally, a Schedule-15 penalty arises when a taxpayer indicates that there is no change to their previously submitted Schedule-15 information, but the CRA doesn’t have that information on file.
That could happen if the previously submitted Schedule 15 wasn’t required to be filed (for example, when a trust exists for fewer than three months but has a T3 filing requirement regardless), so the CRA didn’t keep the information, per the agency’s position on Privacy Act restrictions.
The CRA didn’t keep Schedule-15 information from bare trust returns for 2023 — not initially. That set taxpayers up for a potential Schedule-15 penalty if they indicate no change to their beneficial ownership information when they file a subsequent trust return.
Technically, a bare trust return for 2023 was “a legitimate filing” required by legislation, said Hemal Balsara, head of tax, retirement and estate planning, individual insurance, with Manulife Financial Corp. in Toronto, in an interview. The filing reprieve was merely an “administrative concession” by the CRA, he said.
But at STEP Canada’s annual CRA roundtable earlier this month in Toronto, the CRA said it was made aware that the practice of discarding “voluntarily submitted” beneficial ownership information was problematic.
Once the CRA recognized the penalty risk, the agency stopped discarding the Schedule-15 information in 2024 and re-examined its position, said Katie Campbell, an acting manager with the agency’s Income Tax Rulings Directorate.
“The CRA has determined that it can keep the voluntarily submitted information,” as the information was submitted in a self-assessment system, Campbell said at STEP Canada’s CRA roundtable. “The CRA now processes and retains Schedule 15 submitted voluntarily by a trust, including some of those submitted over the past two years.”
To avoid a Schedule-15 penalty, before filing for 2026 or a future year, taxpayers who filed bare trust returns for 2023 should check their notices of assessment (NoA), which indicate if the CRA didn’t retain Schedule-15 information.
When in doubt, file
The CRA’s retention of the Schedule-15 information “makes sense” from a rules perspective, Balsara said. It’s “good that the CRA is finally keeping the data,” Mantle said.
But the penalty risk remains.
As a tax practitioner, “when you’re doing these T3 returns, often you don’t look at the notice of assessment,” or you might miss the note on the NoA that the CRA didn’t keep Schedule-15 information, said Ryan Minor, tax director with CPA Canada in Sudbury, Ont., in an interview.
“Because the CRA did a complete administrative flip flop [on the retention of 2023 Schedule-15 information], they have inadvertently built a penalty trap into their system,” Mantle said. “If a [tax] practitioner logically assumes the CRA has the 2023 data on file and ticks ‘no change’ on a future mandatory return, the CRA’s system will automatically trigger a penalty if that data was previously purged, simply because [the] system shows no baseline data.”
Tax practitioners could also “assume the information was not retained and provide Schedule-15 details that contradict the original retained information, leading to additional audit queries and possible penalties,” Kulbak said. Interest could also apply to any unpaid penalties, he said.
At the CRA roundtable, Campbell provided guidance for filing a Schedule 15. For example, to make sure the CRA has “the most up-to-date beneficial ownership information,” she said, select “no” on Schedule 15 where it asks if this is the first time the trust is providing beneficial ownership information, and select “yes” when asked if beneficial ownership information has changed since the last time it was reported. Then complete the rest of the schedule as required.
“Expecting tax preparers to dig through old notices of assessment for every single bare trust client to check if the data was dumped, or forcing us to use counterintuitive workarounds on the forms … just to bypass a system glitch is a massive administrative headache,” Mantle said.
Taxpayers who filed 2023 bare trust returns shouldn’t expect a Schedule-15 penalty to be waived. Given the CRA’s changed position regarding Privacy Act restrictions, “the CRA may consider providing relief related to the Schedule-15 penalty based on the trust’s specific circumstances,” Campbell said at the CRA roundtable.
The CRA spokesperson’s email said the CRA “recommends reviewing the notes on the NoA to confirm whether the information was saved. Where there is uncertainty, the CRA may review files on a case-by-case basis.”
Minor suggested following Campbell’s guidance above. “My inclination is to file [Schedule-15 information] when in doubt,” he said. “You don’t want to be fighting a $2,500 penalty.” For trusts generally, “if you missed a Schedule-15 filing, they [the CRA] go straight to the penalty,” he said; there’s no initial request to provide the information.
Besides, bare trust reporting is “a disclosure form,” Minor said. “Primarily what they [the CRA] are after is Schedule 15.”
“Inherent audit list”
An ongoing concern is that, with so many bare trust returns filed for 2023, the CRA has an “inherent audit list,” Mantle said.
“If any of those specific trusts fail to file or update their [beneficial ownership] information down the road, it will be incredibly easy for the CRA to cross-reference their database, identify the missing return and potentially assess penalties,” she said. “It creates a somewhat unfair landscape where those who scrambled to be compliant early are now permanently on the CRA’s radar, while those who held off are not.”
The CRA spokesperson’s email said the collection of Schedule-15 information “does not, on its own, establish an audit list, but rather forms part of the CRA’s broader compliance framework where multiple factors are considered before any audit action is taken.”
The “good news,” Balsara said, is that reporting exceptions, which were in Bill C-15 and have passed into law, are available.
However, the expanded trust reporting “is still an administrative burden” for bare trust arrangements that must comply, he said. He gave the example of a bare trust used to minimize land transfer tax — “non-income-tax reasons” — when beneficial ownership of a property is being transferred. “We’re in a situation where now this needs to be reported as a return, and it also needs to have that Schedule 15 reported,” Balsara said.
Following a review of the CRA’s role in administering the 2023 filing requirements for bare trusts, the Taxpayers’ Ombudsperson recommended, among other things, that the CRA assess whether a unique filing form for bare trusts is needed for easier reporting.
The CRA “determined that creating a separate bare trust return is not necessary at this time,” the CRA spokesperson’s email said.
After reviewing taxpayer feedback and complaints, the CRA “found that the main challenge for taxpayers was not the process of filing a trust return, but rather uncertainty about whether a bare trust exists and whether a return is required,” the email said. “Recent legislative amendments have clarified the filing requirements, and, ultimately, fewer bare trusts are now required to file a return, which will go a long way in addressing this uncertainty.”
CPA Canada has asked the CRA to provide examples of bare trusts — such as in-trust-for accounts with relatives, Minor said — that must comply with the enhanced trust reporting as well as situations when filing isn’t required. “The challenge is identifying the situations,” he said, so that “you’re not scrambling” at tax time.
The CRA is “finalizing detailed guidance for bare trusts to provide clarity and support compliance for the 2026 tax year,” the CRA spokesperson’s email said.