January 26, 2024

• 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.