On March 28,  2024, the Canada Revenue Agency (CRA) determined that reporting requirements for bare trusts have had unintentional impacts on Canadians. As such, CRA will not require bare trusts to file a T3 Income Tax and Information Return (T3 return), including Schedule 15 (Beneficial Ownership Information of a Trust), for the 2023 tax year, unless the CRA otherwise makes a direct request. We will keep you informed as more information and clarity on next steps becomes available.

______________

New Trust Reporting Rules for 2023 that Might Affect You

There are new trust reporting rules that are going to unknowingly affect hundreds of thousands, if not millions, of Canadians and might affect you. This is not just about formal family trusts and estates. This is also about something called a Bare Trust arrangement, something many Canadians are involved with, and probably aren’t even aware that they are.

Though as of March 28, 2024, CRA has determined that filing for the 2023 calendar year is not required, our current understanding is that filing will be required for 2024 with a deadline of March 31, 2025. It is important to understand the new rules and ensure you are compliant.

Understanding Bare Trust Arrangements:

Most surprising to everyone is that bare trust arrangements are caught by these new reporting rules. So, what is a bare trust? A bare trust occurs when someone is listed as the owner (in whole or in part) of an asset, but they’re not the actual beneficial owner. They’re simply holding the asset on behalf of someone else. The beneficial owner is the one responsible for maintaining the asset (repairs, etc.), either has use of the asset or reports income from the asset and will receive the proceeds when the asset is sold.

Step 1: Identifying Bare Trust Arrangements

Determining the existence of a bare trust arrangement requires determining if the person owning the asset is the true beneficial owner. Differences between legal and beneficial ownership will generate the need for a trust return. Surprisingly, people participating in bare trusts might be unaware of their role or the filing requirements.

One should check their bills of sales, purchase agreements, land titles, vehicle registrations, bank or investment account names, etc. These various documents will show who is the legal owner(s) of assets.

Any individual who has filed an Underutilized Housing Tax (UHT) return, exempting themselves from the tax because they are a trustee of a specified Canadian trust, will need to file a T3 return in addition to the UHT return already filed.

Common Examples of Bare Trust Arrangements

• Individual & Estate Reasons:
  • A parent on title for a child’s home to assist them in securing a mortgage.
  • A child listed jointly with a parent on parents’ home, or other property (land).
  • A child listed as joint name on a parent’s bank account.
  • A parent holding a bank or investment account in their name for their child.
• Business Administration Reasons:
  • Corporate bank accounts or loans are set up in the name of the shareholders or director but belong to the corporation.
  • Land and/or building is registered not in the corporate name, but either in the name of the shareholder or director, or perhaps another corporation.
  • Corporate vehicle registered in a name other than the corporation.

These are only examples, and many more situations exist.  Again, where the listed legal owner is not the full beneficial owner, most likely a bare trust arrangement exists, and one needs to file a T3 Trust Income Tax and Information Return

There are however some scenarios where the bare trust arrangement does not exist:

• Having signing authority on a bank account (and not being listed as an account holder).
• Having control of assets under a Power of Attorney (again, not being listed as an owner of the assets).

Step 2: Filing a Trust Return

After identifying a bare trust arrangement, it’s crucial to determine whether an exception from filing a trust return applies. Trusts that have been in existence for less than three months as at December 31, 2023, as well as trusts that hold certain assets worth less than $50,000 throughout the year (provided those assets are only cash, certain debt obligations and listed securities), are examples of common exclusions.

Step 3: Required Disclosures

If a trust must file a tax return, it needs to provide information on trustees, beneficiaries, settlors, and individuals who influence trustee decisions. Gathering this information, which includes names, addresses, dates of birth, residency countries, and tax identification numbers, is necessary for timely compliance.

Penalties for Noncompliance

Failure to file on time incurs fines up to $2,500 and gross negligence penalties may apply. Late filing penalties for bare trusts may be waived for the 2023 tax year. However, caution is advised, as this waiver doesn’t cover situations involving knowingly not filing or grossly negligent failures.

Consequences of Noncompliance

Beyond penalties, improper filing can lead to negative tax outcomes and non-tax consequences, such as potential exposure of assets to creditors. It is crucial to carefully manage these new reporting standards to prevent unexpected problems. As we enter this new era of trust reporting, remaining aware and proactive is critical.

How KWB Accountants and Advisors Can Help

KWB Accountants and Advisors specialize in simplifying complex financial matters. Our experts can guide you through the trust reporting process, ensuring compliance and peace of mind.

To learn more about how KWB can help you simplify your accounting, improve your profit, and achieve your goals, book an introductory meeting here.

__________

Nothing in this article constitutes legal advice and cannot be relied upon to determine the existence of a trust in your own personal situation. If you have any specific questions about trust law, please seek independent legal advice.