Canadians should be aware amendments have been made to trust reporting requirements which take effect for the tax year ending on December 31, 2023. The enhanced rules are more robust and will alter reporting requirements for more trusts that were not historically required to file a trust return, including “bare trusts”. A bare trust is defined as a relationship whereby one person holds title over the property, but the beneficial owner controls the property and any associated rights/obligations related to the property.
Some of the major changes are as follows:
Expanded Filing Requirement
A few examples of bare trusts that will now have a trust filing obligation include:
- Where a parent adds their adult child’s name to their bank account or their investment account so their adult child may help them manage the account, pay bills, or make investments. In this case, the adult child is the agent for the parent under a bare trust.
- Where a parent adds their adult children to hold title to their home to simplify the eventual transfer of the property.
- Where parents hold title to their adult children’s home to co-sign their mortgage. The parents have no say over the property other than at the child’s discretion.
- Where a nominee corporation is used to hold legal title to real estate, but the actual beneficial owner of the property is other people or partnerships.
- In-Trust-For (ITF accounts) that hold more than $50,000 in assets
CRA recently announced relief for bare trusts by waiving late-filing penalties for 2023 bare trust T3s where the T3 return and new T3 Schedule 15 are filed after the filing deadline of April 2, 2024. There is currently no indication on what the deadline is in order to receive the administrative relief from penalties.
Increased Disclosure Requirements
The new rules require trusts to disclose information that includes the name, address, date of birth, residence, and taxpayer identification number (IE: SIN, business number or trust number) for each of the following:
- Settlor
- Trustees
- Beneficiaries, and
- Any person with the ability to exercise influence over trustee decisions
The information must be reported by the trust’s T3 filing deadline, 90 days after its year-end. For a trust with a December 31, 2023 year-end, the filing deadline will be April 2, 2024.
For the purposes of this reporting, the definition of a settlor is very broad and includes the person who established the trust, as well as any non-arm’s length person who has loaned or transferred property to the trust.
Beneficiaries include persons who currently have a right to income or capital as well as those having residual or contingent interests. A trust would be considered to have met the reporting requirements if it provides this information for each beneficiary whose identity is known or determinable, with reasonable effort at the time of filing.
Some types of trusts are exempt from the new reporting requirements. Common exemptions include:
- Trusts that were in existence for less than three months;
- Graduated rate estates (which may exist for 36 months after passing); and
- Trusts that own property with a fair market value of $50,000 or less provided the property consists of cash, government debt obligations, publicly listed securities, or mutual funds.
Penalties
If there is a failure to file and it is made knowingly or because of gross negligence, there will be a penalty equal to the greater of $2,500 and 5% of the fair market value of all the property held by the trust.
We enclose the following link from PWC for your review:
As always, if you have any questions, please feel free to reach out to the team directly.
Have a great weekend,
Tracey & Paige
Source: Written by Ross Adamo, CFP Compliance Officer, Security Financial Services & Investment Corp.
Photo by Romain Dancre on Unsplash
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