Important Update Regarding Bare Trust Filing Requirements: CRA Announcement

On March 28, 2024, the Canada Revenue Agency (CRA) released an important update regarding the filing requirements for bare trusts. In response to concerns about the unintended impact of new reporting requirements, the CRA has announced that bare trusts will be exempt from filing a T3 Income Tax and Information Return (T3 return), including Schedule 15, for the 2023 tax year, unless specifically requested by the CRA.

 

This decision aims to alleviate the burden on Canadians while ensuring the effectiveness and integrity of Canada’s tax system. The CRA will continue to collaborate with the Department of Finance to provide further clarification on this matter in the coming months.

 

For more information and updates, please stay tuned to communications from the CRA.


 

Starting December 31, 2023, significant changes are being made to Canada’s reporting requirements for trusts. Here’s what you need to know about these changes and how they may affect your trust.

Who needs to file

One of the key changes is that more trusts are now required to file an annual return. Prior to these new requirements, trusts that did not generate income, sell capital assets, or distribute income or capital were generally exempt from filing an annual return. 

With the updated reporting requirements, many trusts will find themselves obligated to file for the first time.

It’s important to note that not all trusts are subject to these new reporting requirements. Some trusts remain exempt, including trusts that hold less than $50,000 in certain assets and graduated rate estates, among others. Learn more about exempted trusts.

New reporting requirements for bare trusts

CRA trust reporting requirements have also expanded to include bare trusts. We are hearing a lot of confusion from clients as not everyone who has a bare trust knows they have a bare trust.

Common examples of bare trust arrangements for individuals include:

  • A parent on the title of a child’s home (without having beneficial ownership) to assist their child in getting a mortgage.
  • A parent or grandparent holds an investment or bank account in trust for a child or grandchild
  • One spouse is on the title of a house or asset while the other spouse is at least a partial beneficial owner

Common examples of bare trust arrangements for estate planning reasons include:

  • A child is on the title of a parent’s home (without having beneficial ownership) for probate or estate planning purposes only
  • A child is on a parent’s financial accounts (or other assets) to assist with administration after a parent’s passing

Common examples of bare trust arrangements for business administration reasons include:

  • Shareholders opening a corporate bank account of which the corporation is the beneficial owner of the funds
  • A corporation being on the title of an individual’s real estate, vehicle or other asset and vice-versa
  • Assets are registered to one corporation but beneficially owned by a related corporation
  • Use of a nominee corporation for real estate development purposes
  • A partner of a partnership holding a bank account or asset for the benefit of all other partners of the partnership
  • A joint venture arrangement where the operator holds legal title to development property as an agent for the benefit of other participants
  • A cost-sharing arrangement where a person holds a business bank account or other assets to facilitate the arrangement while having no, or only partial, beneficial interest in these shared assets

Common examples of industry-specific bare trust arrangements include:

  • A property management company holding operational bank accounts in trust for their clients, or individuals managing properties for and holding bank accounts for other corporations
  • A lawyer’s specific trust account (a lawyer’s general trust account is largely excluded from the filing requirements, but a specific trust account is not)

The exact way these new requirements will be enforced is yet unclear, so right now we’re recommending you talk with your accountant to determine if this will impact you.

When do the changes take place?

For trusts that are affected by the new requirements, the changes are effective for tax years ending after December 30, 2023. This means that, starting with the tax year ending December 31, 2023, trusts must file an annual T3 Trust Income Tax and Information Return (T3 return) along with a Schedule 15 (Beneficial Ownership Information of a Trust).

How to file

Trusts subject to the new regulations will need to provide additional information about the trust’s structure and beneficiaries. This includes details about trustees, settlors, beneficiaries, contingent beneficiaries and controlling persons, even if they were only reportable entities for part of the year. These changes aim to create more transparency for trusts and their beneficiaries.

To file a T3 return, you’ll need your trust account number. This number should be included on your trust return, as well as on all related correspondence and payments. You can obtain your trust account number instantly by using the Trust Account Registration service through various channels, including My Account, My Business Account, or Represent a Client.

Important deadlines

The deadline for filing the T3 return and Schedule 15 is 90 days after the trust’s tax year end. For most trusts, this coincides with the end of the calendar year. Therefore, trusts with a tax year ending on December 31, 2023, must submit their T3 Return and Schedule 15 by March 30, 2024. In case March 30 falls on a weekend, as in 2024, the CRA will consider your return filed on time if received or postmarked by April 2, 2024, the next business day.

For more details about filing deadlines, see the T4013 T3 Trust Guide.

Penalties for non-compliance

Failure to file an annual T3 return when required can result in penalties. It’s essential to stay informed and meet the reporting deadlines set by the CRA.

Questions about the new requirement for trusts?

If you’re unsure how to handle the new reporting requirements for trusts, RHN is here to help. Get in touch with your existing rep or schedule a discovery call to learn how we can help you navigate your filing obligations.

Get in touch

This post has been prepared for general information purposes. It is not advice. The information presented may not fit your unique situation, please consult one of our trusted business advisors at RHN CPA for further clarification and interpretation of your circumstances.