Kim Moody: Expansive self-reported regimes add complexity and cost to a system already at its breaking point

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Ask me to put together a piece of flat-pack furniture and I freeze. I have to leave the room when a family member takes one on. The instructions are vague, a piece or two always seems to go missing and I’m never quite sure it was actually put together right.

That describes Canada’s revived trust reporting rules that impact thousands of Canadians and their advisers. The instructions — determining whether an arrangement is a trust at all, whether it’s a bare trust or whether one of the many carve-outs applies — remain vague, built on undefined terms and facts that are often genuinely unknowable at the time you need them.

Often, nobody drafted or kept a trust deed or thought of themselves as a trustee, and the people doing the assembling are mostly accountants, not lawyers. They’re asked to make what is, at its core, a legal characterization call on facts a client may not even think to mention because nothing about the arrangement feels remarkable to them.

Once the adviser has made their best call, there’s no confirmation they got it right; just years of quiet exposure until, maybe, an audit tells them otherwise, with significant penalties attached.

The revised rules are still a very expansive fishing net. A surprising number of ordinary arrangements must first be examined to determine whether a trust exists, whether it is a reportable bare trust and, only then, whether one of the statutory exclusions applies.

The net is broader than most people realize and the holes are narrower than they appear because the hard work is often determining whether you are even near one. Cutting more holes doesn’t shrink the net, either; it just means more fish have to swim close enough to one to find out whether they fit through.

Consider an elderly parent who adds an adult child to a bank account simply so bills can get paid. The new $250,000 family exception may relieve the filing, but someone still has to determine whether a trust exists and whether every condition for the exception is satisfied throughout the year. Fewer filings at the end doesn’t mean less work along the way.

Good luck trying to navigate this unless you have significant experience.

Economist Adam Smith in 1776 set out four tests for a good tax system in The Wealth of Nations: fairness, certainty, convenience and efficiency. The second and third ones — that a tax should be certain and levied in the manner most convenient for the person paying it — are where this latest trust regime fails outright.

There is nothing certain or convenient about asking ordinary Canadian families holding assets for one another to comply with a complex reporting regime.

Once the net is cast and the trustees, beneficiaries and settlors are dutifully reported — including names, birthdates and social insurance numbers — what does the Canada Revenue Agency do with that information? Something useful?

We’ve been here before. Foreign reporting forms such as the T1135 and T1134 have carried substantial penalties for decades, even though the reporting obligation itself often produces no additional tax owing, yet the CRA has never clearly shown what that mountain of reporting has actually yielded compared with its compliance cost.

The vast majority of people filling out these forms have nothing to hide. They’re not the target; they’re the bycatch.

Contrast that black hole with how precisely the CRA quantifies everything else it cares about. Its 2026–27 Departmental Plan sets a $20-billion compliance revenue target and tracks tax debt and collection results in detail. But ask what beneficial-ownership trust or foreign reporting data has bought Canadians in improved compliance, and there’s no comparable public scorecard.

If a reporting regime can’t show its work, why does it get to keep imposing itself on people who were never the problem?

It’s also worth noting the CRA isn’t short on modern tools to find the fish worth catching without dragging the net through everyone’s living room.

The CRA runs more than 200 artificial intelligence projects, uses machine learning for real-time risk assessment and has said its long-term goal is a system that makes compliance “effortless” by minimizing the need for taxpayer interaction.

That’s a good goal, but it’s hard to square with expanding a manual, legally ambiguous reporting regime onto ordinary families in the same year it’s boasting about how much friction AI is removing everywhere else.

Advisers, meanwhile, have had to build their own workarounds. My co-owned education venture, Canadian Tax Matters, launched a Trust Reporting Navigator this week to walk practitioners through whether an arrangement is even a trust, whether an exemption applies, and how to document the position. It does not, of course, replace wisdom and judgment, but needing a purpose-built tool just to answer a threshold question is itself the indictment.

Any serious tax reform conversation needs to include a hard look at reporting regimes generally, not just this one.

The evidence for third-party information reporting can be powerful: some studies tie automatic financial-account exchange between governments to measurable compliance gains. But that is materially different from forcing ordinary taxpayers to identify legally ambiguous relationships and report them themselves.

Expansive self-reported regimes add complexity and cost to a system already at its breaking point unless government can show, with real evidence, that the benefits exceed the burden.

Smith gave us the test 250 years ago. It’s long past time we applied it, so Canadians can stop wondering if they assembled their filing correctly without the CRA handing them an Allen key too.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.
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