May 2, 2023
All Tax Articles

More new dangers abound from new trust reporting rules that were enacted by Parliament last December, and will take effect for the 2023 tax year. The first reporting under these rules will be required by April 1, 2024 (90 days after year-end, but since March 30 in leap year 2024 is a Saturday, the deadline will be extended to Monday).

Trusts have always been required to file a T3 return, but the CRA has allowed a trust not to file in most cases if it has income of $500 or less and no tax to pay. And a “bare trust” was not required to file a return at all.

A “bare trust” is a common-law arrangement where the nominal or legal owner of property has no rights to the property, and must simply follow the instructions of the real owner, such as to hold the property and eventually transfer it to another party. (In Quebec, where the Civil Code applies instead of the common law, a “prête-nom” is similar to a bare trust.)

Thus, for example, real estate is often held by a numbered company as bare trustee for the real owners, who might be individuals, corporations, a limited partnership or some combination of these. Or a lawyer might have title to a home or cottage as bare trustee for a group of family members.

Under the new rules (Income Tax Act subsection 150(1.3)), a bare trustee will have to file a trust return. The CRA has not yet indicated whether this will be the usual T3 return, or a special return that it develops for reporting bare trusts (which seems more likely, since the bare trust itself does not pay tax). These rules are part of a general expansion of CRA reporting requirements, partly to comply with worldwide tax compliance rules that have been developed by the Organisation for Economic Cooperation and Development (OECD).

Non-reporting can trigger a penalty of $25 per day up to 100 days, i.e. $2,500 once the return is 100 days late. Deliberate false reporting can trigger a penalty of 5% of the highest value of the trust throughout the year, minimum $2,500.

This letter summarizes recent tax developments and tax planning opportunities from a third-party affiliate; however, we recommend that you consult with an expert before embarking on any of the suggestions contained in this blog post, which are appropriate to your own specific requirements. Please feel free to get in touch with Lee & Sharpe to discuss anything detailed above, we would be pleased to help.
Douglas K. DeBeck

Hello, my name is Douglas K. DeBeck, I am a partner at Lee & Sharpe.

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