Update on bare trust tax filing rules for 2024 and beyond
Bare trust reporting requirements have gone through a few different iterations in recent years. Here’s where things stand for 2024 and future tax years.
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Bare trust reporting requirements have gone through a few different iterations in recent years. Here’s where things stand for 2024 and future tax years.
Bare trusts have had a lot of attention in 2023 and 2024. Taxpayers and tax professionals have been confused by the filing requirements for bare trusts, and the federal government has been somewhat uncertain in its messaging.
Starting with the 2023 tax year, trustees of bare trusts were supposed to begin filing T3 Trust Income Tax and Information Returns, including Schedule 15 (Beneficial Ownership Information of a Trust).
T3 returns are normally due March 31, but because this date fell on Easter weekend in 2024, the deadline was extended to Tuesday, April 2.
On March 28, 2024, a few days before the deadline, the Department of Finance changed its mind about the reporting rules. Bare trusts were exempted from filing for 2023, except in the unlikely event that the Canada Revenue Agency (CRA) directly requests the filings from the taxpayer.
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There is no definition of a bare trust in the Income Tax Act. However, according to the CRA, “a bare trust for income tax purposes is a trust arrangement under which the 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.”
Essentially, it’s when someone has legal title to property or assets that belong to other people.
Common examples include:
All trusts in Canada must file an annual tax return called a T3 return, unless certain conditions are met. This return includes all the required disclosures, including the income earned by the trust and distributions to beneficiaries of the trust. It also includes a calculation of the income tax payable by the trust, if applicable.
This schedule is a part of a T3 return filing. It is used to report beneficial ownership information of a trust.
If the trust is required to provide beneficial ownership information, the Schedule 15 form must list the name, date of birth, address and social insurance number of all trustees, settlors, beneficiaries and controlling persons to the CRA.
Draft legislation was released in August with a consultation period ending on September 11, 2024.
Assuming the legislation is passed, bare trusts will again be exempt from filing T3 returns for the 2024 tax year. Presumably, this is to allow another year to raise awareness of the rules among Canadians and hopefully get things right going forward.
If the legislation passes as proposed, bare trusts that have less than $50,000 of assets during the year, regardless of the type of assets, will be exempt from filing.
If all parties to a bare trust are related, that limit rises to $250,000, depending on the assets. So long as the assets are cash, guaranteed investment certificates (GICs), stocks, bonds, mutual funds or exchange traded funds (ETFs), this higher limit applies.
Notably absent from this list of assets is real estate. But a full exemption applies for real estate that would be the principal residence of one of the related legal owners.
The bare trust tax filing rules have been confusing to say the least. But the good news is that fewer trusts should be required to file for 2024 and future years.
You can speak to your accountant about how the new rules impact you. If you file your own personal tax return, you can consider getting professional help for your trust filing even if you continue a do-it-yourself approach for your other tax returns.
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