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Bare Trusts and Jointly Owned Property

New CRA Reporting Requirements for Trusts: December 2023 Update

See last month’s blog for more details: “New rules for trust (“T3″) reporting – YOU MAY BE AFFECTED” 

Is your name jointly on the legal title for any assets? Who has beneficial ownership of these assets (i.e., a Bare Trust)? Perhaps your name is legally on your parent’s home, on a joint-banking or joint-investment account? If yes, you may have a new reporting obligation with the Canada Revenue Agency (CRA).

Overview

The CRA’s legislative amendments, enacted in December 2022, introduce additional reporting requirements for certain express trusts in their annual T3 return for tax years ending after December 30, 2023. This includes bare trusts and some jointly owned properties, which previously may not have been required to file a T3 return.

Who is Affected?

Bare Trusts:  These are trusts where the trustee holds legal title of the trust property, but the beneficiary retains the beneficial ownership. The trustee has no independent power or discretionary rights over the property. Common examples include jointly owned investment accounts and real property ownership.

Jointly Owned Property: Jointly owned bank accounts and investment accounts often fall under these new rules, especially when one party is primarily managing the assets on behalf of another.

Previously Exempt Trusts: Trusts that did not earn income, dispose of capital property, or make distributions in a year were not required to file an annual return. Now, many of these trusts will be filing a T3 return for the first time.

Reporting Requirements

Trusts must file a T3 Trust Income Tax and Information Return and Schedule 15 (Beneficial Ownership Information of a Trust).

Additional information is required for all reportable entities such as trustees, settlors, beneficiaries, and controlling persons for the trust, even if they were part of the trust for only part of the year.

Deadline

The filing deadline for the T3 return and Schedule 15 is 90 days after the trust’s tax year end, which is typically the end of the calendar year.

For trusts with a December 31, 2023 tax year end, the deadline is March 30, 2024. However, since this falls on a Saturday, returns will be considered filed on time if received or postmarked by April 2, 2024.

Practical Example

Scenario: Brad is added to his mother May’s investment account to assist with administrative tasks. May continues to report all investment income and gains from the account on her T1 return, and there’s no evidence of a gift from May to Brad.

Implication: This arrangement likely constitutes a bare trust between Brad (Trustee) and May (Beneficiary). Unless an exception applies, this relationship would be subject to the new reporting requirements.

Other Common Examples

– A parent adds adult children to the title of their property for probate planning purposes.
– A child adds a parent to the title of their property to obtain financing.
– Legal title is held by a corporation but the beneficial owner is a separate entity.
– Legal title to the property is registered in the name of a spouse, but both spouses have beneficial ownership.
– Legal title is held by an individual or entity on behalf of a group of owners in a partnership.

This list is not meant to be exhaustive.

Conclusion

These changes signify a significant shift in how trusts, especially bare trusts and certain jointly owned properties, are reported to the CRA. It’s crucial for trustees and beneficiaries of such arrangements to be aware of these new obligations to ensure compliance and avoid potential penalties. For personalized advice, clients should consult with their tax advisor or accounting professional.

Important Notice

Clients are advised to review their trust arrangements and seek professional guidance to understand the full implications of these new reporting requirements. This summary is for informational purposes and should not be considered as tax or legal advice.

For T3 Trust Reporting requirements please click here for details from Canada Revenue Agency.