We have written before about the new trust reporting rules that were enacted by Parliament in December 2022, and which first apply for the 2023 tax year.
The first reporting under these rules is required by April 2, 2024. (The deadline is 90 days after year-end. Because this year is a leap year, this means March 30, but that’s a Saturday, and April 1 is Easter Monday, so the deadline is extended to Tuesday April 2, the next business day.)
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 must file a T3 trust return.
A regular trust must also file, even if it has no income, unless it falls into one of several very specific exceptions.
Starting now, the T3 includes “Schedule 15”, which requires disclosing the name, address, social insurance number (or other tax number), and birthdate (if human) of every trustee, beneficiary and settlor.
CRA information about the new T3 and Schedule 15, and a detailed Q&A, can be found on its web page “New trust reporting requirements”, at tinyURL.com/cra-trust-rep.
The CRA has said that it will not apply a penalty for failing to report a bare trust for 2023 only. However, this does not apply to a failure that is done knowingly or with gross negligence. If you are aware of the obligation, you must file. Otherwise, the penalty is very severe: 5% of the highest value of the trust property during the year, minimum $2,500. For example, if you fail (knowingly or with gross negligence) to report a bare trust for a property worth $4 million, and you are even 1 day late, the penalty is $200,000. (If the failure to report was innocent and unknowing, there is still a penalty of $25 per day up to 100 days, i.e. $2,500 once the return is 100 days late.)
So make sure a T3 and Schedule 15 are filed for every trust you are involved with!