On August 12th, the Department of Finance offered some additional relief to the bare trust reporting requirements. Many individuals who were captured by the original 2023 rules will now be exempt from filing. Specifically, any situation where parent and child are joint owners of a home or investment account is now exempt from filing.
We wrote about the new trust reporting requirements in our January 2024 newsletter.
After instating the new bare trust reporting late in 2023 for the 2023 tax year, the CRA provided a blanket exemption for 2023 only a few days before the trust filing deadline.
What is a Bare Trust?
Bare trusts are financial arrangements where one person is a beneficiary, and another is a trustee who manages things. This could include people who are joint holders of bank or investment accounts with their parents, and were added to help run the accounts. Also, situations where parents are joint owners of a home with a child to help with qualifying for a mortgage.
Proposed Changes
As already mentioned, 2024 T3 trust returns would be exempted under a one-time relief. Starting in the 2025 tax year, a bare trust will be exempt from filing a T3 return where throughout the year:
- All beneficiaries are legal owners of the trust property, and all legal owners are beneficiaries of the bare trust.
- The legal owners are all related individuals, and the property is real property that could be designated a principal residence of at least one of these owners.
- The legal owner is an individual, the property is real property held for the use or benefit of their spouse or common-law partner, and that property could be designated as the owner’s principal residence.
- Each legal owner is a partner (other than a limited partner) holding the property solely for the use or benefit of the partnership, and at least one partner is required to file an information return for the partnership.
- The legal owner holds the property pursuant to a court order.
- Canadian resource property is held solely for the use or benefit of one or more publicly listed companies (or in certain cases, subsidiaries or partnership of such companies).
- Where a non-profit organization holds funds received from the federal or provincial governments for the use or benefit of other non-profit organizations.
Based on these proposals, some common bare trusts that appear to be exempt include:
- Spouses that have a joint bank account for the use and benefit of both spouses.
- A parent that is on legal title of a principal residence to allow a child to obtain a mortgage.
- An adult child on legal title of a parent’s principal residence.
- Spouses that jointly occupy a family home that could be designated as a principal residence, but only one spouse is on legal title.
It is important to keep in mind that there are several common bare trusts that will not meet the proposed exemptions, and therefore require T3 return filing starting for the 2025 tax year and beyond. For instance, in-trust accounts for the benefit of a minor child, or where an adult child’s name is added to a parent’s bank or investment account to help administer it.
Additional Proposed Exemptions from Filing T3 Schedule 15
The Department of Finance also proposed broadening the list of exemptions from the requirement to file T3 Schedule 15, some of which are relevant to bare trusts. Notably, the following two exemptions are proposed, starting with December 31, 2024 tax years:
- Trusts whose assets have a total fair market value (FMV) of $50,000 or less throughout the tax year (without restrictions on asset type). This would replace the current $50,000 exemption that limits the types of assets that can be held to qualify.
- Trusts that meet all the following conditions:
- All trustees and beneficiaries are individuals
- Each beneficiary is related to each trustee, and
- The total FMV of the trust property is $250,000 or less throughout the tax year, provided the trust’s holdings are limited to certain types of assets (such as deposits, guaranteed investment certificates issued by Canadian banks, debt obligations issued by the government or a publicly listed entity, personal-use property and listed securities).
It’s important to note that even if a T3 schedule 15 exemption has been met for a tax year, the trust may still be required to file a T3 return.
What are the non-compliance penalties?
The penalty for failing to file a T3 return on time is $25 a day (minimum $100, maximum penalty of $2,500). An additional penalty equal to the greater of $2,500 or 5% of the maximum value of the property held during the taxation year by the trust may apply where a failure to file was made knowingly or due to gross negligence.
Conclusion
It is important to determine your bare trust reporting obligations in advance of the filing deadline. Please contact us if you wish to confirm your reporting requirement.
Source: Globe and Mail, Advisor.ca