Canada’s trust reporting rules changed in 2023, meaning there’s more paperwork if you have a trust, including bare trusts. In this blog, we’ll cover:
Trust: A trust is like a legal safety deposit box for assets or property managed by one party (the trustee) to benefit another (the beneficiary).
Here are the three people required to have a trust (the reporting entities):
The settlor creates the trust, the trustee manages it, and the beneficiaries benefit from it.
Have you ever heard of someone holding sole or joint ownership of a home or bank account on behalf of another, like an aging relative or a minor? That's a bare trust. It's handy for privacy, simplifying transactions, or planning your estate.
Bare trusts are a type of trust where the trustee legally owns the assets, but the beneficiaries have hands-on control over them. They can tell the trustee how to manage the trust and make decisions regarding the assets.
Here's how you can recognize a bare trust: the trustee acts more like an agent for the beneficiaries rather than for the person who set up the trust. The trustee doesn't have much say in what happens with the assets; they simply follow the instructions given by the beneficiaries. From the moment the trust is created, the beneficiaries have full and immediate access to the money and any income the trust generates.
We won’t cover testamentary trusts (created when someone dies) or trusts that have always been required to file returns in this article.
Identifying whether you have a trust isn't always straightforward. It is a legal question that is not easy to answer by looking at financials and tax returns. We can file the paperwork with the CRA, but we’re not lawyers.
Here are some signs that you have a trust:
The trustee is responsible for filing an annual T3 return, including Schedule 15, listing the details of the beneficiaries and other reporting entities. The beneficiary, not the trust, taxes all income and capital gains the trust assets generate.
Trustees need to report the name, address, date of birth, social insurance number or business number and the country of residence for each of the following reporting entities:
Before Dec. 31, 2023, a trust wasn’t required to file a T3 income tax return unless it owed tax or sold its assets.
Now, most trusts must file yearly, even if no income was earned and no activity was observed. The deadline to submit the required forms for the 2023 tax year is April 2, 2024.
A penalty of $25/day for each unfiled day, up to $2,500! On March 12, 2024, the CRA announced it would not impose these late filing fines on new bare trusts this year.
This will impact anyone whose names were added to a family member’s home title or financial accounts, even if a taxpayer didn’t intentionally or formally create a trust.
Trusts are exempt from reporting if they meet one of the following:
The changes also extend to certain foreign trusts with ties to Canada. Nonresident trusts with no filing obligation may now need to file an annual tax return in Canada if they meet certain conditions, like having a Canadian resident as a beneficiary or holding taxable Canadian property.
These changes should make trust arrangements more transparent and accountable, ensuring the accurate reporting and taxation of assets held in trusts. If you find these changes confusing or have any questions, don't hesitate to reach out. Let us handle your corporate and personal taxes this year, and enjoy a stress-free tax season.