New legislation has come out that expands the scope of trust arrangements that will be required to file a T3 trust income tax return annually beginning for tax years ending on or after December 31, 2023. This new legislation encompasses bare trust arrangements as well as most other trust arrangements that previously didn’t need to file a tax return even if there is no tax liability or the trust made no distributions during the year. Furthermore, the new legislation also requires additional disclosure be made in the return filing surrounding each trustee, beneficiary, and settlor.
WHAT IS A BARE TRUST?
A trust is an arrangement whereby the trust acts as an agent in the dealings of the trust’s property for the beneficiaries of the trust. Per the CRA, “A trustee can reasonably be considered to act as agent for a beneficiary when the trustee has no significant powers or responsibilities, the trustee can take no action without instructions from that beneficiary and the trustee’s only function is to hold legal title to the property.”
Commonly, this type of arrangement exists when a parent (or parents) add a child onto their property title for estate purposes or a parent is added to a child’s property title for marital or financing purposes.
WHAT ADDITIONAL DISCLOSURES ARE REQUIRED OF ALL TRUSTS?
The new legislation now requires a list of each trustee, beneficiary, and settlor as well as their address, birth date, jurisdiction of residence, and tax number (SIN, business number, trust number or foreign TIN).
EXCEPTIONS
Some types of trusts are not required to file the additional reporting requirements, including:
- trusts that have existed for less than three months at the end of the year;
- trusts that hold less than $50,000 CAD in assets throughout the tax year (as long as they only hold specific types of assets such as deposits, government debt obligations and listed securities);
- mutual fund trusts, segregated funds and master trusts;
- trusts where all the units of which are listed on a designated stock exchange;
- trusts governed by registered plans, including the proposed first home savings accounts;
- employer profit sharing plans;
- lawyers’ general trust accounts;
- graduated rate estates and qualified disability trusts;
- trusts that qualify as non-profit organizations or registered charities;
- employee life and health trusts;
- certain government-funded trusts; and,
- cemetery care trusts and trusts governed by eligible funeral arrangements.
PENALTIES FOR NOT FILING
The CRA may assess a penalty of $25 a day for each day a return is late, with a minimum penalty of $100 and a maximum penalty of $2,500.