As of March 28th, 2024 CRA has released an update on the bare trust reporting requirements. It has been recognize that the new reporting requirements for bare trusts have had an significant and unintended impact on Canadian tax payers, therefore CRA does not require bare trusts to file a T3 Income Tax and Information Return including Schedule 15 (Beneficial Ownership Information of a Trust) for the 2023 tax year unless the CRA makes a direct request for these filings.
The rules governing which trusts must file an annual T3 Trust Income Tax and Information Return ("T3 Return") have been changed for trusts with a taxation year ending after December 30, 2023. Specifically, all trusts, unless specific conditions are met, must now provide a T3 Return including additional beneficial ownership information on an annual basis.
Additionally, bare trusts may now be required to file an annual T3 Return. As a result, many trusts that did not previously have to file are now required to file an annual T3 Return.
These changes were made as part of Canada’s continuous efforts to ensure the effectiveness and integrity of the Canadian tax system. The changes will help the CRA verify that trusts, their fiduciaries, beneficiaries, and related parties have met their tax and filing obligations under the Income Tax Act.
Penalties
If you knowingly or under circumstances amounting to gross negligence fail to file a tax return the penalty will be the greater of $2,500 and 5% of the highest amount of the fair market value of all the property held by the trust at any time in the year.
Bare Trusts
Bare trust for income tax purposes is a trust arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust's property.
These trusts, which act as agents for beneficiaries in managing trust property, were previously exempt from T3 return filing before December 31, 2023. However, the new regulations mandate that bare trusts must file an annual T3 return unless exempted. This expanded requirement now encompasses various informal trust and agency relationships, such as parent-established in-trust accounts for children, joint accounts with individuals other than your spouse.
Bare trusts are commonly utilized in real estate transactions and probate planning. For instance, legal ownership of a Canadian vacation property might be held by a nominee corporation or trustee, while the beneficial ownership remains with another entity or individual. Consequently, bare trusts involved in such arrangements must now file a T3 return if considered resident or deemed resident in Canada.