The Canada Revenue Agency (CRA) has recently announced a significant relief for bare trusts for the 2023 tax year. Here’s a breakdown of the key points:
Relief Announcement
The CRA declared that bare trusts are exempt from filing a 2023 T3 Return unless the CRA makes a direct request for these filings. This also includes the new Schedule 15, “Beneficial Ownership Information of a Trust.” The declaration, issued on March 28, 2024, provides substantial relief to bare trusts, as opposed to other trust categories which do not benefit from this alleviation.
Reporting Requirements Overview
Generally, the new trust reporting rules mandate filing tax returns for bare trusts. These rules apply to trusts with taxation years ending after December 31, 2023. Failure to comply may result in significant penalties, including the new gross negligence penalty.
Understanding Bare Trusts
A bare trust is a trust arrangement where the trustee’s duty is to manage the trust property as directed by the beneficiaries. It is a trustee-beneficiary relationship where the beneficiary has complete control over the trustee’s actions regarding the trust property. The trustee’s role in a bare trust is limited to holding legal title to the property and accordingly, consulting and taking the beneficiary’s instructions. Bare trusts are often used for specific purposes such as gifting property to minors or holding assets for the beneficial owners who are entitled to the trust property outright.
Taxation of Bare Trusts in Canada
For tax purposes, bare trusts are typically disregarded, and income and capital gains are reported on beneficiaries’ tax returns. Traditionally, bare trusts were not required to file trust returns. However, the new reporting requirements alter this obligation, while the tax treatment remains unchanged.
New Reporting Requirements for Bare Trusts
Under the updated regulations, bare trusts must file an annual T3 Trust Return for tax years ending after December 30, 2023. This includes reporting stakeholder information on T3 Schedule 15. The deadline for filing a trust return is 90 days after the taxation year-end.
Exemptions and Penalties
Certain bare trusts may be exempt from the new reporting requirements, such as those in existence for less than three months or holding less than $50,000 in specific assets throughout the tax year. However, non-compliance may lead to penalties, including daily late filing penalties and additional penalties for gross negligence.
Transitional Relief
Notably, 2023 T3 Returns for bare trusts are only required if requested by the CRA under its transitional relief measures.
Understanding these changes and requirements is crucial for trustees and beneficiaries of bare trusts to ensure compliance with the latest regulations and avoid potential penalties.
For more guidance, visit the CRA website or call Northam Law HERE.
