UPDATE ON BARE TRUST REPORTING FOR 2023 TAX YEAR:
On March 28th, 2024, the CRA announced that Bare Trusts would no longer need to file T3 returns for the 2023 tax year unless a direct request is made. We will update this article when further information is made public by the CRA.
December 31st, 2023
The new reporting rules, aimed at providing more transparency on beneficial ownership of assets, now require that more trusts (and estates) file tax returns. These changes will catch out many individuals and businesses that may not be aware of their trust-like relationships, exposing them to potential penalties and other consequences for non-compliance. The rules became effective in 2023, with a filing deadline of April 2, 2024.
As this is the first time many of you will be filing a T3 return or a Schedule 15, we look forward to supporting our clients through the process.
Who needs to file:
There are three main changes under the new rules;
-
All trusts will be required to file an annual T3 Return with the CRA, unless certain conditions are met.
-
Trusts required to file a T3 Return, other than listed trusts, generally need to complete Schedule 15 in their annual T3 return to report beneficial ownership information.
-
Bare trusts are subject to the new reporting rules. Some common business relationships and arrangements that may constitute bare trusts across industries include, but are not limited to, Joint Ventures, Partnerships, Real Estate, Operatorship of Resources, Shareholder Registries, and Internal Administrative Arrangements.
Some types of trusts, including registered plans, qualified disability trusts and others are exempt from this new legislation.
The rules have been expanded to include cases where a trust acts as an agent for its beneficiaries, commonly known as a bare trust. In such instances, the person/entity listed as the owner of an asset is not the true beneficial owner; instead, they hold the asset on behalf of another party.
Does a bare trust arrangement exist?
To determine if a bare trust arrangement exists, the following question should be asked:
- Is the person on the title or holding the asset the true beneficial owner? For example, do they get the benefits of the asset (such as sale proceeds) and bear the costs or risks of the asset (such as property taxes)?
There is likely a bare trust arrangement if there is a mismatch between legal and beneficial ownership, often requiring a trust return.
There are several reasons why an individual, business or organization may use a bare trust arrangement. Many parties involved in a bare trust arrangement may not realize that they are, much less that there may be a filing requirement with the CRA. No lawyer may have ever been involved, and no written agreement may ever have been drafted.
While there are countless possibilities of bare trust arrangements, the following lists some common potential examples.
Individual Reasons
- a parent is on the title of a child’s home (without the parent having beneficial ownership) to assist the child in obtaining a mortgage;
- a parent or grandparent holds an investment or bank account in trust for a child or grandchild;
- one spouse is on the title of a house or asset although the other spouse is at least a partial beneficial owner;
Estate Planning Reasons
- a child is on the title of a parent’s home (without the child having beneficial ownership) for probate or estate planning purposes only;
- a child is on their parent’s financial accounts (or other assets) to assist with administration after the parent’s passing;
Business Administration Reasons
- a corporate bank account is opened by the shareholders with the corporation being the beneficial owner of the funds;
- a corporation is on the title of an individual’s real estate, vehicle or other asset, and vice-versa;
- assets are registered to one corporation but beneficially owned by a related corporation;
- a nominee corporation is used for real estate development purposes;
- a partner of a partnership holds a bank account or asset for the benefit of all the other partners of a partnership;
- a joint venture arrangement where the operator holds legal title to development property as an agent for the benefit of other participants;
- a cost-sharing arrangement where a person holds a business bank account, or other assets, to facilitate the arrangement while having no, or only partial, beneficial interest in these shared assets;
Industry-specific Issues
- a property management company holding operational bank accounts in trust for their clients, or individuals managing properties for other corporations holding bank accounts for those other corporations; and
- a lawyer’s specific trust account (while a lawyer’s general trust account is largely carved out of the filing requirements, a specific trust account is not).
When do you need to file:
The deadline for filing the T3 and Schedule 15 is 90 days after the Trust’s tax year end. The tax year end for most trusts is the end of the calendar year. Trusts with a December 31, 2023, tax year end will need to file their T3 Return and Schedule 15 by March 30, 2024. Since March 30, 2024, falls on Saturday, your return will be considered filed on time if the CRA receives it, or it is postmarked, on or before April 2, 2024 (the next business day).
What this means for you:
-
Identify if a trust arrangement exists (e.g., Hold legal title to a property while the beneficial owner is someone else) See below for examples of bare trusts.
-
Review trust documents in detail to ensure all relevant parties are identified
-
Gather information for all reportable identities
- name
-
address
-
date of birth (if applicable)
-
country of residence, and
-
Tax Identification Number (i.e., Social Insurance Number, Business Number, Trust Number, or, in the case of a non-resident trust, the identification number assigned by a foreign jurisdiction)
