On March 28, 2024, the Canada Revenue Agency (CRA) announced that it will exempt “bare trusts” from the updated trust reporting rules for 2023. For more information on the trust reporting requirements in Canada, please view previous posts here and here.
The original inclusion of bare trusts in T3 filing requirements imposed a significant administrative burden on taxpayers. Bare trusts are commonly used in legal and tax planning where there is a need to separate legal and beneficial ownership. Common examples include:
- registering a child’s name on title to real property or opening a joint bank account with a parent for ease of estate administration and to avoid probate;
- registering a co-signor’s name on title to real property in order to secure mortgage financing; and
- designating one entity to hold title to real property on behalf of the other participants to a joint venture or members of a partnership.
Under amendments made to the Income Tax Act (Canada), the 2023 taxation year would be the first time T3 tax returns are required to be filed for these types of arrangements. The filing due date for trusts with taxation years ending December 31, 2023 is April 2, 2024.
The CRA’s announcement means that bare trusts are no longer required to file a T3 return for the 2023 tax year. Note that the CRA has waived the requirement for bare trusts to file a return in relation to their 2023 taxation year only. The CRA has committed to providing future guidance on reporting for the 2024 taxation year and beyond.
The key characteristic of a bare trust is where a trustee acts as agent for the beneficiaries. Other trust arrangements remain subject to the expanded T3 filing requirements. Determining whether a particular arrangement is a bare trust requires consideration of the specific powers and responsibilities of the trustee under the respective trust deed or other constating document. We encourage trustees seek legal advice to determine whether the bare trust filing exemption applies to their situation. As filing deadlines approach for the 2023 taxation year, trusts and trustees must keep themselves informed of their filing obligations.
If you have questions about your trust or trust filing requirements, please contact one of the lawyers in our Taxation practice group and we who would be happy to assist you.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.