Understanding Canada’s New Trust Reporting Regulations: Spotlight on Bare Trusts
What’s New in Canadian Trust Reporting?
Canada’s updated tax legislation now mandates more comprehensive reporting for various types of trust arrangements, including bare trusts. These trusts are now required to submit an annual T3 Trust Income Tax and Information Return. Failing to adhere to this requirement could lead to considerable penalties.
The revised rules apply to tax years ending on or after December 31, 2023.
Decoding the Bare Trust Concept
According to the Canadian government, a bare trust exists when a trustee effectively serves as an agent for the beneficiaries in all matters concerning the trust’s assets. This broad classification encompasses a range of scenarios, from estate planning setups to nominee-held properties and accounts held “in-trust-for” someone.
Certain trusts are not subject to the expanded reporting rules, such as:
- mutual fund trusts, segregated funds, and master trusts
- trusts governed by registered plans
- lawyers’ general trust accounts
- graduated rate estates and qualified disability trusts
- trusts that qualify as non-profit organizations or registered charities
- trusts that have been in existence for less than three months
- trusts that hold less than $50,000 in assets throughout the taxation year (provided that their holdings are confined to deposits, government debt obligations and listed securities)
What Needs to be Disclosed?
Trusts subject to the new legislation must disclose detailed information about all associated entities—settlor, trustees, beneficiaries, and anyone with decision-making authority in the trust. This information is part of Schedule 15, Beneficial Ownership of a Trust, which should accompany the T3 return. Required details include names, addresses, birth dates (for individuals), country of residency, and taxpayer identification numbers.
Deadline and Filing Procedure
T3 returns must be filed annually, within 90 days of the calendar year-end. The deadline for 2023 T3 returns, assuming a calendar year-end, will be April 1, 2024.
Non-compliance can result in various penalties:
- Late Filing: A daily fine of $25, capped at $2,500, and starting at a minimum of $100.
- Misrepresentation or Omissions: A penalty equal to 5% of the trust’s peak asset value during the relevant year, subject to a minimum of $2,500, can be applied for:
- Intentionally or negligently failing to file a return.
- Providing incorrect information intentionally or through negligence.
- Not responding to a request for filing by the Canadian Revenue Agency (CRA).