Bare Trust Tax Reporting Requirements for Calendar 2023

Is your name on a parent’s bank account or home? Are you on title of your child’s property? The new Bare Trust tax reporting requirements are vast, and we encourage you to read the below.

Examples of Bare Trusts Requiring Tax Filing

The term bare trust is not defined in the Income Tax Act. However, it is a trust arrangement under which the trustee can reasonably be considered to act as an agent for all beneficiaries under the trust. Bare trusts are often established for a variety of purposes that facilitate the separation of legal and beneficial ownership of an asset. Some common examples of a bare trust include:

  • Adding adult children’s names to bank accounts or property both for administrative and probate planning purposes. Such an arrangement could also apply to the family home.
  • Having a parent’s name on title of a property so their child can qualify for a mortgage.
  • Holding financial accounts In Trust For (ITF) children or grandchildren.
  • A person (individual or corporation) holding full legal title of a property on behalf of another person.

Overview of Changes

Originally announced in the 2018 Federal Budget, and delayed multiple times since, the Canada Revenue Agency (CRA) has implemented comprehensive changes to trust reporting requirements. Beginning with the 2023 tax year (filed in 2024), all trusts, including bare trusts, are required to file an annual T3 Trust Income Tax and Information (T3) return. This is the first time such a filing requirement has been in effect.

The exception to this filing mandate are listed trusts, which include, amongst others:

  • Trusts in existence for less than three months at year-end
  • Those trusts holding assets (including debt) with a fair market value not exceeding $50,000 throughout the year.

In addition, effective the 2023 calendar year, all trusts have mandatory reporting with regards to personal information pertaining to the roles held within the trust.

Required Information

All trustees, beneficiaries, settlors and other controlling persons of the trust must provide their legal name, address, date of birth, country of residence and tax identification number. This is applicable irrespective of any intentions to maintain anonymity within the trust structure.

Offered Relief

While bare trusts need to file a T3 return for the first time in 2024, the deadline for these initial returns is effectively delayed by removing penalties for T3s filed after the deadline.

T3 returns are due 90 days after their year-end. Trusts that have a December 31 year-end, must be filed by March 31 of the following year, or March 30 on leap years. (For the 2023 tax year, the filing deadline is April 2, the first business day after March 30 as that date falls on a weekend). The CRA has announced that there will be no penalty for late filing of 2023 T3 returns for bare trusts, without a stated end date to the penalty free period, effectively delaying the deadline for 2023 T3 returns. The CRA has noted that gross negligence penalties may apply (equal to the greater of $2,500 and 5% of the highest amount at any time in the year of all the property held by the trust) if there is a failure to file the T3. In addition, failure to file bare trust returns could also result in the beneficiaries’ tax returns being open to CRA scrutiny without any statute of limitations (typically 3 years from the date of mailing of a Notice of Assessment). Due to the ambiguity, Bateman MacKay recommends all Trustees submit their T3 return by the original date or as soon as possible to avoid any application of gross negligence penalties.

Bateman MacKay Can Help

As mentioned above, the penalties for non-compliance can be severe. It is important to collect the required information for all trusts and submit a T3 return, especially for bare trusts which have not had to file in the past. If you have any questions about new trust reporting requirements, winding up a trust, or if you may benefit from a trust, please contact a Bateman MacKay Tax and Business Advisor.

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