Updated Mar 29: T3 trust return filings are now required for ‘Bare Trusts’

Original Article – Prior to the recent CRA Announcement.

In light of recent regulatory changes, it’s essential to understand how new filing requirements for ‘Bare Trusts’ might influence your tax strategy and compliance efforts.

The Canada Revenue Agency (CRA) has introduced a new filing requirement for ‘Bare Trusts’ that may affect individuals and entities holding real estate or other assets in trust arrangements. This change underscores the need for diligence and awareness in managing trusts to ensure adherence to these new regulations.

What is a ‘Bare Trust’ and who may have to file?

• An individual is registered on the title of any real estate that they do not beneficially own (e.g., having your name on the title of a piece of real estate owned by your parent, child, or other relative). This is often done to avoid probate, estate contestation, or for other estate planning purposes.
• A general partner, typically a corporation, in a limited partnership arrangement is the title holder to the underlying assets of the partnership. This arrangement is typically used in real estate investments, but may also include business operating partnerships.
• A bare trustee corporation acts as the title holder to an asset for the benefit of someone else, such as holding the title to investments in a nominee corporation. This arrangement is often used in real estate development, oil and gas and resource exploration, or general estate and probate planning.
• An individual holds an “in trust” bank or investment account for a child or a parent.
• An individual has purchased a property “in trust”, but the actual owner is not clearly identified. This arrangement is commonly used with real estate purchases or certain pooling of private investments where the title holder or purchaser is not the true underlying economic or beneficial owner of the property.

When are these due to be filed?

• March 31, 2024

Temporary waiver of penalties

On 1 December 2023, the Canada Revenue Agency (CRA) announced that it will temporarily waive the late-filing penalty for the 2023 taxation year for bare trusts (and bare trusts only) that file their T3 return and Schedule 15 after the 30 March 2024 filing deadline. We are still encouraging all clients to file by the March 31st deadline since CRA can, depending on the facts and circumstances, revoke the waiver of penalties.

Penalties

The penalties related to these new filing requirements can be severe and are equal to the greater of $2,500 and 5% of the highest total fair market value of all property held by the trust in the year, with no maximum penalty.

The CRA noted that it is providing this administrative relief since this is the first taxation year in which bare trusts will have a T3 filing requirement as a result of the new reporting requirements. However, the CRA also stated that this relief only applies to the 2023 taxation year, and if the failure to file by the applicable deadline is made knowingly or due to gross negligence, the steeper penalty provisions noted above may still apply.

Other changes

A new beneficial ownership schedule is required, T3 Schedule 15, Beneficial Ownership Information of a Trust. The basic data of beneficiaries of trusts must now be reported. If you file a T3, be prepared to provide some additional data this year.

Our fee to prepare this seasons filing is $350+hst.

Contact LEAP ACT to speak with a member of our team about this if you think you may need to do a filing and would like our help to determine whether or not you need to file and solicit our assistance in doing the filing.

Please send us a message through our contact form, or call our front desk at 905-892-0400.