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There is a lot of fear and concern out there about these new trust reporting requirements. We thought it would be hugely beneficial to clarify what is and isn’t happening and what you do and don’t need to do about it.
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What is the change?
Starting with taxation years ending December 31, 2023, there are new requirements regarding trusts that will have to start filing a T3 Trust Return.
What are the filing deadlines?
The deadline for filing a trust return is 3 months after the trust’s year-end, so for December 31, 2023 taxation years, that deadline would be March 31, 2024. Because March 31, 2024 falls on a weekend, the due date would be the next business day, which would be Monday, April 1st or Tuesday, April 2nd, depending on which province you live in.
Why would this affect me? I haven’t changed anything?
These new trust reporting requirements are likely to impact many people, even though those people haven’t actually changed anything, because of how broad the legislation is. It now includes what are commonly referred to as “Bare Trusts,” which many people have and don’t even realize they have.
What is a bare trust?
Simply speaking, a bare trust is any situation where the legal ownership of an asset and the beneficial ownership of an asset are not the same person / entity. Here are two common examples:
Co-signer on a mortgage – one person (or family) is living in the house that has been purchased. However, due to a variety of possible reasons, they required another person (often a parent) to co-sign the mortgage and to be on title, in order to be able to qualify for it. In this case, the parental co-signer(s) have legal ownership of an asset (the house), but they are not the beneficial owners (becuase they are not living in it).
Co-signer on a bank account – one person (usually a minor child or an aging parent) will have another person be a co-signer on their bank account for legal reasons. In this case, the minor child or the aging parent is the beneificial owner of the account (the money in it is intended to be theirs), but the co-signer has legal ownership claim to it.
There are other situations where this type of situation can exist, but these two examples should be enough to illustrate the point.
I still don’t get it…what’s the big deal?
Because the two examples above, and others like it where the beneficial ownership and the legal ownership of something are different, are considered bare trusts, they are now caught under the new trust reporting requirements, and starting with the Dec 31, 2023 tax year, they are now required to file T3 trust returns.
Are there any exceptions to the bare trusts that have to file?
The short answer is yes. There are. Bank accounts with less than $50,000 in them are exempt. Trust accounts used by law firms are exempt. There are a few other exemptions, but not as many as we’d like to see, at least not so far.
How does one file a T3 trust return, especially for these types of bare trusts?
Herein lies one of the biggest problems. More often than not, these types of bare trust arrangements don’t actually have any structure to them. There is often no formal contract or agreement. The trust doesn’t have a name. The trust doesn’t have any potential value. The trust doesn’t have a trust identification number. All of these components are required in filing a T3 trust return and are not in place for most bare trust situations.
What happens if I don’t file a return by April 1, 2024?
The short answer is nothing. If you are caught under these new bare trust reporting requirements, the CRA has said they are going to waive the penalties associated with filing past the deadline, during this first transition year.
What advice would you give if I find myself caught under these new bare trust reporting requirements?
Our general advice is to wait. A year ago, the CRA rolled out the Underused Housing Tax (UHT) reporting requirements, which turned out to be such a gong show that they ended up backpeddling on a lot of it. We anticipate this to be something similar. At the very least, we expect the CRA to come out with clearer methods and easier forms to use to file these new bare trust returns. As there is no penalty attached to this first year of filing, we recommend you wait until later this year to see what changes / improvements come.
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