Bare trusts across Canada will soon be required to file annual returns with the Canada Revenue Agency (CRA) or face penalties. The new reporting regime will require most Canadian residents with express trusts and bare trusts to file a T3—Trust Income Tax and Information Return—commencing in their first taxation ending after December 30, 2023.
This new requirement—proposed under the revisions to the February 4, 2022 draft legislation—could potentially have substantial tax implications, and we recommend discussing the new reporting regime with your accountant or tax professional.
What is a Bare Trust?
Bare trusts are a simple concept; it is where one person’s name is shown as the owner of an asset, but the asset really belongs to someone else.
The person who is the true owner of the property is called the owner, and the person whose name shows up as an owner but who really doesn’t have any entitlement to the rights and risks of the property is called a bare trustee or nominee.
What are the Reporting Requirements?
The full scope of reporting obligations under the new T3 reporting requirement can be best answered by your accountant or tax professional, however there are a few key pieces of information to keep in mind.
Information that needs to be disclosed in filing your T3:
Some exemption to the reporting regime may apply for certain bare trusts in a particular calendar taxation year if:
Under the legislation, trusts are required to file a T3 for years ending after December 30, 2023. Since these trusts are deemed to have a calendar year-end for T3 reporting, they will have to file a 2023 T3. The T3 is due 90 days after the year-end or March 30, 2024.
It should be noted that in leap years the filing deadline becomes March 30. Many bare trust corporations file a T2 corporate tax return based on an off-calendar year-end. However, their T3 filing requirement will still be based on a calendar year-end.
What are the Penalties?
The penalties for non-compliance with the new reporting requirements can be substantial, especially in the case of real estate properties held in the bare trust.
Penalties are assessed in terms of length of non-compliance, and for real estate properties, as a percentage of the fair market value of the property, which ever is greater.
Key Take Away
While the new T3 reporting rules for bare and other trusts may seem concerning, a qualified accountant and/or tax professional can help you navigate them. The key is to ensure your team is prepared for the reporting deadline and the T3 requirement is part of your year-end tax strategy.
This information is current to March 31, 2023 and is not a substitute for legal or tax advice and should not be relied on as legal or tax advice.