On March 28, 2024, the Canada Revenue Agency (CRA) announced that bare trusts would be exempt from the T3 filing obligations for the 2023 tax year, unless the CRA makes a direct request. The CRA stated this was in recognition that the new trust reporting requirements for bare trusts have had an unintended impact on Canadians. The CRA will work with the Department of Finance to further clarify its guidance on the filing requirements for bare trusts over the coming months. Currently, bare trusts will still be required to file for the 2024 taxation year. Express trusts are still subject to the new filing requirements for the 2023 taxation year.

If you have a trust or trust-like arrangement, speak with your tax advisor to confirm whether it is a bare trust or an express trust to determine your filing obligations.

The article below reflects the rules prior to the March 28 update.

The 2023 tax filing year brings significant changes to the trust reporting rules. With the goal of enhancing the collection of beneficial ownership information and aiding the Canada Revenue Agency (CRA) in evaluating the tax liabilities for trusts and beneficiaries, the expanded reporting rules cast a very broad net in terms of the types of arrangements that could now have an annual T3 filing requirement.

With few exceptions, virtually all express trusts and bare trusts in existence as of Dec. 31, 2023 will be subject to these new annual reporting requirements. The expanded scope may catch some individuals off guard. This article outlines the expanded T3 filing requirements and identifies some bare trust-like arrangements that may now be required to file for the first time. 

Prior to the 2023 taxation year, many trusts were exempt from filing an annual T3 return provided certain criteria were met. Historically, a trust generally only had to file a T3 return if it had taxes payable, disposed of capital property, or made any distributions or allocations to beneficiaries. 

Under the new rules, most trusts will now be required to file an annual T3 return even if the trust has no income or makes no allocations or distributions. Exceptions to the filing obligation now only apply in very limited circumstances where the trust:

• Has been in existence for less than three months.
• Holds only specific types of assets with a fair market value of $50,000 or less.
• Or, is a specific type of “listed trust” (See full details here).

Notably, bare trusts, which were also previously exempt from filing, will now be treated as trusts for tax filing and reporting purposes and will have to file an annual T3 return. 

As noted above, all express trusts and bare trusts (with very limited exceptions) are now required to file a T3.

The meaning of “express trust” is not clear in the legislation, but the CRA has indicated that an express trust is generally a trust created with the settlor's express intent, usually made in writing. The starting point in determining whether a filing obligation exists is determining whether or not a trust exists. For individuals who have formal trust deeds in place, it may be more evident that a filing obligation exists. 

A “bare trust” refers to a trust arrangement under which the trustee can reasonably be considered to act as an agent for all the beneficiaries under the trust with respect to all dealings with all of the trust's property.

Where uncertainty may arise is whether a trust has been created where there is no formal trust documentation. In some cases, ordinary, everyday arrangements may qualify as a trust under these rules. Many people may find themselves surprised to discover they are part of a trust arrangement, despite never having signed any trust paperwork. Whether a trust arrangement exists under these informal circumstances is a legal determination and a question of fact that must be reviewed by your tax and legal advisors. Some common situations which could potentially create a trust-like arrangement include, among other things:

• A child added to a parent’s bank or investment account to help them manage the funds on behalf of the parent.
• A child added to the legal title of their parent’s real estate that they do not beneficially own (often done for estate planning purposes).
• A co-signed mortgage arrangement that requires the co-signer to be on title.
• In-trust for bank or investment accounts held for children or grandchildren.

These arrangements may not seem like a trust arrangement to the individuals involved. Those individuals may not have any reason to expect that they have a filing obligation, as a result. Regardless, the new rules may be broad enough to impose a filing requirement on these kinds of relationships. Whether these situations create a trust will be based on the specific facts of the arrangements. Until the rules become more clear, any person who holds property in a trust-like arrangement may wish to seek legal and tax advice to understand their filing obligations.

In addition to expanding the scope of when an annual T3 filing is required, trusts will also be required to disclose substantially more information to the CRA than in the past. The new Schedule 15, Beneficial Ownership Information of a Trust, which now forms part of the T3 return, asks for information on all trustees, settlors, beneficiaries and controlling persons (i.e., 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) for the trust. For the aforementioned parties, this includes their:

• Name
• Address
• Date of birth
• Jurisdiction of residence, and;
• Taxpayer identification number

The breadth of the term “settlor” may come as a surprise, as well. Any person who has contributed property to or for the benefit of the trust, directly or indirectly, would need to disclose their connection to the trust in this new information return. This also includes any person who has provided a loan to or for the benefit of the trust, unless the person deals at arm’s length with the trust and the loan or transfer meets certain requirements.

The T3 filing deadline is generally 90 days after the trust’s year-end. Since March 30 falls on a weekend in 2024, the trust filing deadline for the 2023 taxation year will be April 2, 2024. 

New penalties have also been introduced for failing to file a T3 return or failing to provide the required information on a T3 return if the omission is made knowingly or was due to gross negligence. These new penalties are equal to the greater of $2,500 and five per cent of the highest total fair market value of all the property held by the trust at any point during the taxation year. 

In addition, the prior late filing penalties continue to apply. Where there is no balance due, the penalty is $25 for each day late, with a minimum penalty of $100 and a maximum penalty of $2,500. This penalty can apply even if you had no reason to expect that you were a part of a trust relationship.

The CRA has announced that it will temporarily waive the penalty for the 2023 taxation year for bare trusts only. The CRA has noted that they are adopting an “education-first” approach to compliance for bare trusts, acknowledging that some bare trusts may be uncertain about the new requirements as they have not previously had a filing obligation. While this proactive relief only applies to the existing late filing penalties, as part of CRA’s education-first approach, the CRA has noted that it will only apply the gross negligence penalty in the most egregious cases where a bare trust fails to file. The CRA stated that imposing such a penalty would only occur in the context of a compliance action, such as an audit, where all factors and circumstances of the taxpayer’s particular situation are considered together.