New reporting rules to provide more transparency surrounding the beneficial ownership of assets now require more trusts (and estates) and arrangements not commonly considered “trusts” (and estates) to file tax returns.
These changes will apply to many individuals and businesses that may not be aware these rules will apply, as well as the penalties and other consequences for noncompliance. The rules became effective in 2023, with the April 2, 2024 filing deadline.
Required reporting has been expanded to include situations where a trust acts as an agent for its beneficiaries (commonly known as a bare trust). In such cases, the trustee is listed as the legal owner, not the true beneficial owner.
Many parties involved in a bare trust arrangement may not realize they are and may not know the filing requirements.
Trust Filing Requirements After December 2023
There are three main changes under the new rules:
- Unless certain conditions are met, all trusts will be required to file an annual T3 Return,
- Trusts that are 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 (see below).
Registered plans are exempt from this legislative change.
A Trust can exist even if there is no written agreement.
Bare Trust Examples
The following is a list of potential bare trust arrangements. The CRA has not directly commented on some of these, and it is not clear how they will interpret the legislation:
- Intrust accounts: A parent or grandparent holding an investment or bank account in trust for a child or grandchild, or
- Mortgages: A parent on the title of a child’s property (without the parent having beneficial ownership) to assist the child in obtaining a mortgage.
- Family Home (asset protection): One spouse being on title of a house or asset, although the other spouse is at least a partial beneficial owner,
- Banking: A corporate bank account opened by the shareholders, with the corporation being the beneficial owner of the funds,
- Real Estate & Vehicles: A corporation being on title of an individual’s real estate, vehicle or other asset, and vice-versa,
- Cross-owned assets: Assets registered to one corporation but beneficially owned by a related corporation,
- Nominee Corporation: Use of a nominee corporation for real estate development purposes,
- Property Management: Holding operational bank accounts in trust for their clients, individuals managing properties for other corporations holding bank accounts for those other corporations
- Lawyer’s specific trust account: (while a lawyer’s general trust account would largely be carved out of the filing requirements, a specific trust account would not), or
- A partner of a partnership holds a bank account or asset for the benefit of all the other partners.
- Real Estate: A child on the title of a parent’s home (without the child having beneficial ownership) for probate or estate planning purposes only.
- Investment Accounts: Adding an adult child to a bank or investment account for estate planning purposes.
Failure to make the required filings and disclosures on time attracts penalties of $25 per day, to a maximum of $2,500, and further penalties on any unpaid taxes. New gross negligence penalties may also apply, being the greater of $2,500 and 5% of the highest total fair market value of the trust’s property at any time in the year.
- Determine if a trust exists and review the bare trust information above.
- Gather information on each reportable person or entity (name, address, date of birth and tax ID-SIB/BN/Trust # foreign tax ID).