Bare trusts exempt from new reporting rules for 2023, CRA says

March 28, 2024

The Canada Revenue Agency says it won’t require Canadians with bare trusts to adhere to complex new tax-reporting requirements for the year 2023, after recent legal amendments meant to increase transparency around trusts caused an uproar among both many affected taxpayers and tax professionals.

The announcement, which came just days before this year’s April 2 deadline for filing trust returns, means tax filers won’t have to report bare trusts this year unless the agency makes a direct request for the files.

The new rules have been lambasted for including onerous requirements to disclose information to the CRA that critics said were particularly hard to comply with in the case of bare trusts, which are often informal arrangements that aren’t documented in writing.

In a statement online the tax agency said it was exempting bare trusts in recognition that the new reporting requirements have had “an unintended impact on Canadians.”

Chartered Professional Accountants of Canada, which represents the profession at the national level, had been among the groups asking the CRA to push back the deadline for filing bare trust returns, said John Oakey, vice-president of taxation at the organization.

Instead, the tax agency used its administrative powers to waive the filing requirements entirely for bare trusts for the 2023 tax year, Mr. Oakey said, calling the move “a much better outcome” compared with a deadline extension.

A trust is a legal relationship in which someone called a trustee holds property for another person known as the beneficiary. In a bare trust, the trustee can only act on the instruction of the beneficiaries.

Accountants and tax lawyers warned that many ordinary, poorly documented arrangements used by Canadians to manage family finances constituted bare trusts that would be caught in the new rules. In many cases, those affected by the new rules never formally or intentionally set up a trust.

Common scenarios involve people who hold title to their adult children’s home because they co-signed their mortgage and those who have their names on their elderly parents’ bank or investment accounts.

This tax season was supposed to be the first time in which Canadians would have to file what’s known as a T3 Trust Income Tax and Information Return for bare trusts, which were previously exempted from having to report information to the CRA.

Part of the difficulty of complying with the reporting requirements stemmed from the fact that assessing whether a bare trust exists can involve extensive information gathering and complex interpretations of common law, according to many tax advisers.

A March online survey conducted by The Globe and Mail through the Carrick on Money newsletter shows the new reporting rules for bare trusts were forcing many taxpayers to spend hundreds – if not thousands of dollars – in accounting and legal fees in addition to routine tax-preparation costs.

While the CRA’s announcement is good news, showing the government listened to sustained and increasing criticism, the fact that it came so close to the filing deadline means both individual and corporate taxpayers have already spent millions of dollars in fees and expenses, said Allan Lanthier, a prominent tax expert and retired partner at EY.

“The Minister of Finance should take a hard look at this fiasco, and develop a new, consultative approach to legislative drafting so that these types of mistakes don’t happen again in future,” Mr. Lanthier said via e-mail.

Kevin Burkett, partner at Burkett & Co. Chartered Professional Accountants, said the late notice would punish conscientious taxpayers and tax professionals who had already submitted bare-trust returns. “Your most honest, ethical taxpayers and practitioners have probably made their bare trust filings already,” he said.

The trust reporting requirements had also resulted in significant extra costs and workloads for accounting firms, according to several tax professionals who spoke to The Globe.

To help Canadians comply with the rules, CRA had previously said it wouldn’t apply penalties for 2023 bare trust returns submitted after the deadline, except in blatant cases of gross negligence. On Thursday, the agency went further by exempting bare trusts entirely for the 2023 tax year.

The move represents the second time in four months that the federal government has walked back new tax-filing requirements. In November, Ottawa announced it would largely scrap reporting obligations for Canadians stemming from the Underused Housing Tax (UHT). The measure, which is meant to discourage foreign real estate investors from leaving residential property underused or vacant, also affects many Canadian and permanent resident homeowners and some Canadian corporations.

Both in the case of trusts and with the UHT, the primary impact of the recent tax changes on Canadians is to create new obligations to disclose information to the CRA, rather than to introduce new taxes.

On bare trusts, the tax agency said in the statement announcing the exemption for 2023 that it will work with the Department of Finance over the coming months to clarify its guidance on this filing requirement. It also said it will share with Canadians further information as it becomes available.

Mr. Oakey said he hopes those consultations will produce rules that, while satisfying Ottawa’s goal of boosting transparency around trusts, are also workable.

“Let collectively come up with rules that actually capture that information without being so broad in scope that they’re capturing useless information.”

Your CPP questions answered: If you’re receiving survivor benefits, is there a good time to take your own CPP?

February 20, 2024

As part of this ongoing series, we invite readers to ask questions about their Canada Pension Plan (CPP) retirement benefits and find experts to answer them. This week, we asked Kevin Burkett, tax partner at Burkett & Co. Chartered Professional Accountants in Victoria, to answer some questions about survivor benefits:

What’s the difference between a death benefit and a survivor benefit?

The death benefit applies in cases in which the deceased made contributions to the CPP that meet certain requirements around years of contributions. It’s a one-time payment of $2,500 that can be applied for immediately after the contributor’s death, paid to their estate or, in cases in which there’s no estate, it can go to the person paying for funeral expenses, the surviving spouse or the next-of-kin, in that order.

The survivor’s pension is a monthly pension paid to the surviving spouse or common-law partner and, in cases in which the survivor is 65 or older, results in a 60 per cent entitlement. If the surviving spouse is under 65, they receive a base amount of $227.58 per month, which is the flat rate portion for 2024, plus 37.5 per cent of the deceased contributor’s retirement pension entitlement. Note that if the surviving spouse is already receiving a CPP retirement pension, the total of these amounts is limited to certain thresholds.

If you are receiving survivor benefits, is there a good time to take your own CPP? I was 62 when my husband passed away and I started receiving survivor benefits then. I tried to research the best time for me to take my own CPP, and it’s all very confusing. No one seems to have a good, clear answer.

It is very confusing. The best choice will depend on your specific situation. In addition to all the usual considerations of when to start your own retirement pension, you need to be aware of the overall limit for someone receiving a combined survivor’s and retirement pension. In some cases, if this limitation affects you, it may be best to defer receiving your own retirement benefit to obtain the increased retirement entitlement at 70. If you call Service Canada, a representative can provide you with the exact numbers of your combined survivor pension and retirement benefit if you decide to start now. You could then compare this to the option of allowing your retirement pension to grow by deferring it.

Can you tell me what the CPP maximum combined survivor and retirement pension is if the deceased or the survivor starts collecting at 70? Also, what is the impact if both spouses are over 65 and neither is collecting when one of them passes away?

The 2024 maximum combined survivor’s and retirement pension, as shown on the Service Canada website, is $1,375.41. This limit is for a surviving spouse who starts their own retirement pension at 65. If the surviving spouse defers their CPP benefits until 70, this limit is increased by 42 per cent. If both spouses are over 65, and neither is collecting the CPP when one of them passes away, the surviving spouse’s combined survivor and retirement pension will be subject to the maximum limit at that time, after taking into account the 0.7 per cent per month increase that applies by deferring the start of the retirement pension after 65.

Trust us: You don’t want to be caught off guard by new reporting rules

  • New expanded reporting requirements from the Canada Revenue Agency (CRA) that took effect in 2023 now require many trusts to file an annual trust tax return (T3)
  • This update includes ‘bare trusts’, a unique trust-like relationship which many individuals and businesses may not realize they are part of
  • The trust tax return filing deadline is April 2, 2024, with the potential for significant penalties for those who don’t file

What is a trust and why did the CRA’s create new reporting rules?

Trusts are a helpful tool used in tax and estate planning that describe a legal relationship that allows a third party (a “trustee”) to hold assets on behalf of a beneficiary. In 2023, the Federal government implemented new income tax reporting requirements for trusts to improve transparency.

While these new tax reporting requirements are intended to catch individuals who use trusts to avoid certain tax obligations or disclosures, the expanded rules now require many trusts to file an annual trust tax return (T3) where they previously had no reporting requirements.

What type of trusts are affected?

Formal trusts, informal trusts, and bare trusts are all included in these new reporting rules. The first two are fairly common and straight forward, but bare trusts are unique arrangements which can be tricky because there are no requirement to sign paperwork to formally establish one or set out the parties’ intentions.

As a result, many unsuspecting Canadian businesses and individuals are likely unaware that they are deemed to be part of a bare trust and have a filing requirement – putting them at risk of being caught off guard.

How do I know if I’m part of a bare trust?

There is likely a bare trust arrangement if there is a mismatch between legal and beneficial ownership of property. In such instances, the person or entity listed as the owner of an asset is not the true beneficial owner; instead, they hold the asset on behalf of another party.

Bare trusts can exist even where there is no formal documentation of the intentions of parties involved.

Examples of a bare trust could include:

  • a parent is added to the title of their child’s home to assist the child with qualifying for the mortgage to purchase a home;
  • a child is added to the title of an aging parent’s home for the purpose of simplifying the estate process;
  • a child is added to their aging parent’s bank account to help their parent with bill payments or other transactions as directed by the parent;
  • a corporation is on title of an individual’s real estate, vehicle or other asset, and vice-versa; or
  • assets registered to one corporation but beneficially owned by a related corporation 

What is the penalty for failing to file?

These changes will catch 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. Typically, bare trusts have no income or taxes owing, however, failure to file an annual trust tax return before the April 2, 2024 deadline may lead to significant penalties and interest and could have other unintended long-term consequences.

While the CRA is taking an “education-first approach to compliance” for the 2023 tax year and may waive late-filing penalties for certain bare trusts that submit their T3 returns after the deadline, it’s best to take time to understand if you’re affected now so you can be prepared.

How do the new trust reporting affect my unique situation?

Understanding if you’re affected by the new trust reporting requirements and when to file is critical, and we’re here to help. If you would have questions or would like to discuss the specifics of your unique situation, please contact our Tax Manager Brad Grsic (250.370.9178 | [email protected]).

Disclaimer: This article is intended to inform readers in general terms. It is not intended to provide any tax, investment or business advice. Please consult your advisor if you have any questions about your unique situation. While we have tried to ensure the accuracy of the information in this article, we accept no liability for errors or omissions.

Under the hood of the Underused Housing Tax (UHT)

  • The Underused Housing Tax (UHT) is an annual 1% tax on vacant or underused residential property in Canada owned by non-Canadians
  • The UHT does not apply to commercial property and Canadian citizens who personally own residential property, including vacation homes, are exempt
  • Understanding how your unique situation qualifies and if you need to file is crucial as there are significant penalties for non-compliance

What is the UHT?

In effect since January 1, 2022, the Underused Housing Tax (“UHT”) is an annual federal 1% tax on the ownership of vacant or underused housing in Canada.

While the tax was intended to target vacant or underused residential real estate owned by non-citizens, there are situations where the rules could apply to Canadians – so even if you don’t have to pay the tax you may still be required to file a return to claim your exemption.

As there are significant penalties for non-compliance it’s important to understand who is affected by it, what exemptions are available, when to file, and what the penalties are. You’ll find all the answers to these important questions in the article below.

Does the UHT affect me?

The UHT only applies to owners of residential property, which includes detached homes, semi-detached homes, rowhouse units, townhouses, residential condominium units, laneway and coach houses, cottages, cabins, and chalets that are not for commercial use.

Residential property does not include high-rise apartment buildings, quadruplexes, buildings that are primarily (50% or more) for retail or office use and that contain an apartment, or commercial property of any kind.

Everyone falls into one of three main categories under the UHT: those who are excluded and do not have to file, those who are affected and must file and pay the tax, and those who are affected but exempt and must file to not pay the tax. As such, residential property owners are defined as either “Excluded Owners” or “Affected Owners”.

Excluded Owners include but are not limited to: Canadian citizens or permanent residents, registered charities, and cooperative housing corporations. Canadians who own property directly are considered Excluded Owners and do not have to file.

Affected Owners include, but are not limited to:

  • An individual who is not a Canadian citizen or permanent resident
  • An individual who is a Canadian citizen or permanent resident and who owns a residential property as a trustee of a trust
  • A personal representative of a deceased individual
  • Any person who owns a residential property as a partner of a partnership
  • A private Canadian corporation
  • A corporation that is incorporated outside of Canada
  • A Canadian corporation without share capital


Affected Owners are only required to file a UHT return if they own residential property located in Canada.

What qualifies as exempt under the UHT?

There are exemptions available to Affected Owners which include but is not limited to:

  • The residential property is the primary residence of you, your spouse or common-law partner, or for your child who is attending a designated learning institution
  • A new owner in a calendar year
  • Newly constructed
  • Not suitable to be lived in year-round, or seasonally inaccessible
  • Uninhabitable for a certain number of days because of disasters or hazardous conditions or renovations
  • Vacation properties located in an eligible area of Canada and used by you or your spouse or common-law partner for at least 28 days in the calendar year
  • The residential property is rented for at least 180 days in the calendar year to:
    • a third-party with a written contract
    • a related person with a written contract who pays at least fair value rent
    • your spouse or common-law partner, parent, or child who is a Canadian citizen or resident

If you are an Affected Owner who is exempt from the UHT, you must still file an annual UHT return to claim your exemption. An Affected Owner could be subject to UHT on an exempt property if the UHT return is not completed.

When do I have to file?
The UHT return filing due date is April 30 of the following year. If you file later than December 31, you may be subject to adjusted tax calculation or penalties.

What are the UHT penalties?
Penalties for failing to file a required UHT return when it is due is a minimum of $5,000 for individuals and $10,000 for corporations.

How can I learn more about the UHT?

Understanding how your property ownership qualifies under the UHT as well as how and when to file is critical, and we’re here to help. If you believe the UHT applies to you or would like to confirm that you are an Excluded Owner, please contact our Tax Manager Brad Grsic at 250.370.9178 to discuss your unique situation.

Disclaimer: This article is intended to inform readers in general terms. It is not intended to provide any tax, investment or business advice. Please consult your advisor if you have any questions about your unique situation. While we have tried to ensure the accuracy of the information in this article, we accept no liability for errors or omissions.

A bespoke approach to tax loss selling

Discretionary PM outlines how he approaches the practice year-round and highlights where he sees the greatest potential for gain in tax loss selling season

November 30, 2023

Tax loss selling often begins with a calendar reminder. Somewhere in November, advisors start poring over clients’ non-registered accounts looking for unrealized losses that can help alleviate a tax burden or offset a tax bill coming from any realized gains. It’s a bread-and-butter value add for advisors, using technical skills to manage a client’s taxes.

Kevin Burkett thinks there’s an opportunity to demonstrate that value year-round. The portfolio manager at Burkett Asset Management looks for opportunities to realize losses throughout the year. When he does that, however, he tries to take a more holistic view, seeing how this particular sale can fit into a client’s overall plan.

“The traditional approach is to say ‘let’s find stocks that have fallen the most, and sell those stocks over a year, and when you take that simplistic approach you are potentially missing out on a recovery in those companies’ shares,” Burkett says. “You want to have in your scope a view as to whether you want to remain invested in that company and hope they realize share price recovery. I wouldn’t say what we do is drastically different than the conventional approach. I think we just try to zoom in more and consider a broader range of factors to get the client the best outcome, and to show the client that we’re thinking about their situation in a pretty deep way.”

Burkett notes a few considerations his team keeps in mind around tax loss sales. Holding companies, for instance, may have very different fiscal years. Therefore he and his team make note of when any sales needs to happen within the context of a particular holding company’s setup.

The rules around capital losses are crucial, too. Investors must adhere to the superficial loss rule, wherein a security is sold by a person and a party affiliated with that person — such as their spouse or holding company — buys the identical security. As well, the same position can’t be entered within 30 years of its disposition. Burkett educates his clients on these rules, as they might re-enter the same position via their spouse’s account or a holding company out of fear of missing out on a gain.

Burkett also has to combat that FOMO when tax loss selling comes. He notes, however, that given the incredible diversity of similar ETFs now available on the market, he can exit certain positions at a realized loss, move into another position with similar overall exposure, and not trigger any violations of the rules. That can keep his clients participating in any potential share price recovery and improving their overall tax efficiency.

After a volatile few years on the market, Burkett sees the greatest potential for tax loss selling advantages in fixed income. After three years of negative total returns on most fixed income, there is a significant opportunity to exit positions at a loss while moving into positions with very similar overall exposures, risk ratings, and potentially more advantageous yields.

Higher yields on bonds, however, add to the interest income portion of a client’s tax exposure. Burkett thinks that tax-sensitive clients could actually benefit from some of the lower-yield bonds issued during 2020 and 2021, which are coming to maturity soon. Those bonds are currently trading at a discount, and between the outlook for broad improvement on the bond market and the likely return they will provide at maturity in the form of capital gains, they could be a way to realize a tax loss on fixed income positions now and shift some interest income tax bills over to the more efficient rates delivered by capital gains.

Burkett notes that sometimes the temptation to realize a loss for tax sale purposes can be great, but argues that if the right alternative product doesn’t exist for clients, it might not be right to exit that position. Advisors approaching tax loss selling need to be careful and mindful of how exiting a position at a loss, only to add the same position at a higher cost down the road will make them look.

“If you sell and realize a loss, and you don’t put that in the market, you might get lucky, but I don’t know if clients are going to give you credit. I think they will hold it against you if you get unluck,” Burkett says. “You’d hate to have a client statement that shows you sold a position and bought it back much more expensively, I think if you can point to what you did with the funds in the interim, and show that you continued to participate, that’s a better story for your client than simply saying ‘I left it as cash for the required 30 days and then bought the position back.’”

Why the FHSA isn’t just a homeownership game-changer

July 26, 2023

The First Home Savings Account has been open to Canadians for a few months, and it’s already gaining traction among young Canadians eager to jumpstart their own homeownership journey. But according to two experts, the newest registered savings plan on the block raises some other interesting planning possibilities.

“This works like an RRSP, because you’re able to claim income tax deductions on contributions you make into the account,” says Mark Halpern, CEO at WEALTHInsurance.com (pictured above, left). “It also works like a TFSA in that qualifying deposits grow tax-free and withdrawals you make from the FHSA are tax-free.”

In the months before FHSAs were introduced, Kevin Burkett, portfolio manager at Burkett Asset Management, did a podcast based on preliminary information from the federal government.

“I think now we’re seeing other interesting planning possibilities based on allowable transfers between FHSAs and other registered plans,” Burkett (above, right) says.

Starting from when they first set up their FHSA, an aspiring Canadian homeowner has 15 years to purchase a home. If they end up not using the money in their FHSA by then, they can consider a few options. One option, according to Burkett, is to transfer the balance into their RRSP.

“That creates some opportunities for folks who may not even be considering a home purchase to use the FHSA to boost the room in their RRSP, because I don’t believe that transfer from your FHSA into your RRSP counts against your RRSP room,” he says. “So let’s say you’re a young 22-year-old professional trying to decide between an RRSP and a first home savings account, I think the FHSA is your best option in almost every case.”

When someone makes a withdrawal from their RRSP accounts, Burkett says, every dollar withdrawn is counted as taxable income. But with the FHSA, Canadians can avoid that penalty by instead transferring funds from their RRSP to their FHSA, which are not subject to income inclusion.

“If you transfer $40,000 to the FHSA first, you’ll then have the opportunity to draw out for that home purchase without paying any tax on the RRSP balance,” he says.

“There’s also a loan mechanism for RRSP holders to withdraw from their RRSP for a home purchase through the Home Buyers’ Plan,” Burkett says. “The First-Time Home Savings Account, in my opinion, is far superior to the Home Buyers Plan, in terms of its ability to get you a down payment on a nice home.”

While many older Canadians may make plans to leave a portion of their wealth as a legacy to help future generations, the FHSA also creates a fresh opportunity for those who want to make a generous gift to help their family today while they are alive.

“Parents or grandparents could gift $8,000 to their grandchild. If it’s in cash, there’s no taxable attribution on the gift, so it won’t come back to bite them,” he says. “If the adult child then makes an $8,000 contribution to their FHSA, they get an RRSP-type receipt, which helps them save around $4,000 in taxes. That money will now grow tax-free.”

As Halpern notes, FHSA owners can put in a maximum of $40,000 in their accounts and have the money professionally invested. That means down the line, two young Canadians who’ve been making FHSA contributions with their parents’ or grandparents’ help and also have their RRSPs and TFSAs running could potentially make a strong first step toward owning a home together by the time they get married.

“Imagine a new couple each have an FHSA and have each maxed out their contribution room, and their accounts have grown to $80,000 apiece,” he says. “Through the Home Buyers’ Plan, each spouse can take a $35,000 tax-free withdrawal from their RRSP. So they’ll potentially be able to put down a downpayment of $230,000 or more.”

While Burkett mostly works with older, wealthier clients who are ineligible to use FHSAs, he says he would readily advise young Canadians to use them.

“If I did meet a new client, a young person unsure on a home purchase, I would be recommending a First Home Savings Account regardless of intention,” he says.

Four overlooked deductions to include in tax returns

April 5, 2023

Registered retirement savings plan (RRSP) contributions and child care deductions are the biggest line items to lower net income on tax returns that can push Canadians into a lower tax bracket. But missed opportunities to reduce that net income even further still abound, tax professionals say.

“Deductions are important and in a different category than credits,” says Kevin Burkett, partner at Burkett & Co. Chartered Professional Accountants in Victoria. “In many cases, the deductions available show how tax planning overlaps with investments used.”

Here are four deductions taxpayers may overlook on their tax returns.

1. Using spousal RRSPs to split income

Spousal RRSPs work as follows: one spouse makes the RRSP contribution (using their own contribution room), but the money goes into the account in the name of the lower-income spouse, Mr. Burkett says.

“The benefit is that in the longer term, you are able to draw that out as income to the lower-income spouse,” he notes.

Tax legislation introduced in 2017 limited the ability for many incorporated business owners to split income with their spouses. These rules contained several exceptions, including when the business owner is over age 65.

Mr. Burkett says spousal RRSPs may provide relief for those under 65 who have available RRSP contribution room to achieve some degree of income splitting.

“Provided the contribution stays in the spouse’s account two more years before the money is withdrawn, the income is taxable to the plan [owner],” he notes.

2. Fees paid to advisors

Are fees that clients pay to advisors tax deductible? The short answer is it depends, says Wilmot George, vice-president, tax, retirement and estate planning at CI Global Asset Management in Toronto.

Taxpayers cannot claim commissions paid on investments or fees for advice given on registered accounts, for example. But if they have a non-registered account in which the advisor is paid for advice or management of their investments, those fees can be claimed under “carrying charges, interest expenses and other expenses” – line 22100 on the tax return.

What about fees paid for financial planning? Unfortunately, they don’t qualify to be claimed, Mr. George says.

3. Fees for borrowing money to invest

For non-registered accounts, the interest paid on borrowing money for investment purposes is generally tax deductible, Mr. George notes.

“If the money is used to generate investment income, interest, dividends, rental income … as long as there’s potential to earn income from the investment,” it can be claimed under the same place as advisor fees, he says.

4. Moving expenses

Taxpayers can write off their transport, storage, related insurance, travel expenses and other related items if they move, but there are some specific terms and conditions about who is eligible, Mr. George says.

“It matters how far you move and for what purpose,” he says.

The main qualifiers for this deduction are if the person is moving to earn income for an employer, going to school full-time or starting a business, he says.

Another sticking point is the move must be a minimum of 40 km closer to your new work location or school.