You guys might find this article from Scotia Wealth Helpful. It also has a link for expanded interpretation just puvlished bt Revenue Canada.
https://www.canada.ca/en/revenue-age...mber-2023.html
https://livesocial.seismic.com/ljp_9a
— Wealth Management Taxation, Scotia Capital Inc.
March 5, 2024
Have you established an in-trust-for (ITF) account for your child or grandchild? Do you own a bank account, non-registered investment account, or certain other assets, such as real property, jointly with your parent, child, or others?
If so, you may be subject to the new trust reporting requirements and required to file a T3 Trust Income Tax and Information Return (T3 Return).
New trust reporting requirements
The income tax rules governing which trusts must file an annual T3 Return have been expanded for trusts with a taxation year ending after December 30, 2023. Under the new trust reporting requirements, all trusts, unless specific conditions are met, must now file a T3 Return with the Canada Revenue Agency (CRA) and report additional beneficial ownership information annually. As a result, many trusts, including bare trusts, that did not previously have to file may now be required to file an annual T3 Return.
What is a bare trust?
A bare trust for income tax purposes includes an arrangement under which a trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property. There is no requirement for a bare trust to be documented or to sign a formal bare trust agreement establishing the parties’ intentions.
The CRA notes that a trustee can reasonably be considered to act as agent for a beneficiary when the trustee has no significant powers or responsibilities, can take no action without instructions from that beneficiary, and their only function is to hold legal title to the property. For the trustee to be considered as the agent for all the beneficiaries of a trust, it would generally be necessary for the trustee to consult and take instructions from each and every beneficiary with respect to all dealings with all of the trust property.
So, if you have legal ownership of an account or assets but only act as agent for a beneficiary and do not have beneficial ownership of the account or assets, you may be a trustee of a bare trust subject to the new trust reporting requirements.
Examples of bare trust arrangements may include:
You establish an ITF account for your child or grandchild, where you hold legal ownership of the account and assets, but your child or grandchild is the beneficial owner;
You add your child(ren) as a legal owner of certain assets for ease of administration and probate planning purposes without transferring any beneficial ownership to them; or
You add your parents as legal owners of real property for mortgage qualification purposes without transferring any beneficial ownership to them.
What could the new trust reporting requirements mean to you?
If you are the trustee of a bare trust, you may now be required to file an annual T3 Return, subject to certain exceptions, including Schedule 15, Beneficial ownership information of a trust (Schedule 15). Schedule 15 requires you to provide certain information on all trustees, settlors, beneficiaries, and controlling persons (persons who have the ability, through the terms of the trust or a related agreement, to exert influence over trustee decisions regarding the appointment of income or capital of the trust) of the trust. This information includes their name, address, date of birth (if applicable), country of residence, and tax identification number (e.g., Social Insurance Number, Business Number, Trust Number, or, in the case of a non-resident trust, the identification number assigned by a foreign jurisdiction).
A T3 Return is due 90 days after a trust’s year-end. Bare trusts have a calendar year-end of December 31. So, 2023 T3 returns for bare trusts are due by April 2, 2024, as March 30 is a Saturday and April 1 is Easter Monday.
What may happen if you do not file a T3 Return if required?
You may be subject to penalties if you do not file a T3 Return if you are required to do so. Specifically for bare trusts, the late-filing penalty is $25 per day for each day the T3 Return is late, from a minimum of $100 to a maximum of $2,500.
The CRA will only provide relief to bare trusts by waiving any late filing penalty for the 2023 tax year if the T3 Return, including Schedule 15, is filed after the filing deadline. This proactive relief is applicable for bare trusts only and only for the 2023 tax year.
Notably, a different penalty may apply if you fail to file the T3 Return and Schedule 15 for the 2023 tax year knowingly or due to gross negligence. This penalty will be equal to the greater of $2,500 and 5% of the highest amount at any time in the year of the fair market value of all the property held by the trust.
What are the exceptions to the new trust reporting requirements?
There are exceptions to the new trust reporting requirements for certain trusts. Among others, these exceptions include:
trusts that have been in existence for less than three months at the end of the year;
trusts that hold only certain assets with a total fair market value that does not exceed $50,000 throughout the year, such as money (note that money does not include collectible gold or silver coins, or gold or silver bars); a share, debt obligation, or right listed on a designated stock exchange; a share of the capital stock of a mutual fund corporation; or a unit of a mutual fund trust;
registered plans, such as Registered Retirement Savings Plans, Registered Retirement Income Funds, Registered Pension Plans, Tax-Free Savings Accounts, First Home Savings Accounts, Registered Education Savings Plans, Registered Disability Savings Accounts, Employee Profit Sharing Plans, and Deferred Profit Sharing Plans;
a Graduated Rate Estate; and
a Qualified Disability Trust.
In conclusion
The CRA has published information and guidance on the new trust reporting requirements on its website, New trust reporting requirements for T3 returns filed for tax years ending after December 30, 2023, as a helpful resource when determining and completing your annual income tax filing and reporting obligations. These new trust reporting requirements may be onerous, and you should consult with your tax advisor to review your circumstances, determine your applicable annual reporting requirements, and plan to meet the annual filing deadline, if applicable.
This article is only an overview of the new trust reporting requirements. Everyone’s situation is unique, and any general tax planning opportunity may not benefit every person. Speak with your own tax and legal advisors for further discussion and analysis and before implementing any tax, estate, asset administration, or probate planning strategies.
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