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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.

The First Home Savings Account (FHSA) in Canada offers several key guidelines for prospective first-time home buyers:

Purpose and Availability:

The FHSA is a registered plan designed to help first-time homebuyers save for their first home in a tax-efficient manner. It became available starting April 1, 2023.

Eligibility and Account Opening:

Qualifying Individuals: To open an FHSA, individuals must be at least 18 years old, not more than 71 years old, a resident of Canada, and a first-time home buyer.

Account Providers: FHSAs can be opened through banks, credit unions, trust or insurance companies, and come in three types: depositary, trusteed, and insured FHSAs, each offering different investment options

Contribution Limits:

The annual contribution limit is $8,000, with a total lifetime limit of $40,000. Even if the account is opened partway through the year, the full $8,000 annual limit is allowed for that year.

Tax Deductions and Growth:

Contributions to the FHSA are tax-deductible, and the savings grow tax-free within the account. This provides a dual tax advantage – deduction on contribution and tax-free growth.

Unused Contribution Room:

If the full annual contribution limit is not utilized, up to a maximum of $8,000 can be carried forward to future years, allowing for flexibility in savings.

Withdrawal Rules:

Withdrawals from the FHSA to purchase a qualifying home are tax-free. This makes the FHSA a valuable tool for accumulating a down payment on a first home.

Closing the FHSA:

Maximum Participation Period: The period begins with the opening of the first FHSA and ends on December 31 of the 15th year, when the holder turns 71, or the year following the first qualifying withdrawal.

Closure Procedures: Before the end of the maximum participation period, FHSAs should be closed to avoid unintended tax consequences. The remaining funds can be transferred to RRSPs or RRIFs or withdrawn as taxable income.

These guidelines are crucial for prospective first-time homebuyers, as they outline the benefits and limitations of the FHSA in the context of saving for a home purchase. It’s important to understand these rules to make the most of this savings opportunity.

For detailed information and specific conditions related to the FHSA, please visit the Canada Revenue Agency’s webpage: First Home Savings Account (FHSA) – Canada.ca

The Ontario Not-for-Profit Corporations Act (ONCA), proclaimed on October 19, 2021, introduces significant changes affecting nonprofits in Ontario:

Overview of ONCA

1) Effective Date: The ONCA became effective on October 19, 2021.

2) Key Changes: These include requirements for audits, members’ rights, the number of directors, and the introduction of the Ontario Business Registry (OBR) for online filings.

3) Transition Period: Existing Ontario not-for-profit corporations, which were previously governed under the Ontario Corporations Act (OCA), have been given a three-year transition period, starting from October 19, 2021, to align their governing documents with the new requirements of the ONCA. Ontario Non-profits are expected to make any necessary changes to their articles and bylaws to comply with the new regulation by October 18, 2024.

Public Benefit Corporations (PBCs)

1) Definition: A nonprofit is a PBC if it’s a charity or received more than $10,000 in the previous financial year from public sources, including government grants or donations from non-members.

2) Special Rules for PBCs: PBCs have specific rules regarding financial review and reporting, as well as restrictions on the distribution of assets upon dissolution. Charitable PBCs cannot have directors who are employees, except under special circumstances. Non-charitable PBCs are limited to one-third of their directors being employees or ex-officio directors.

Financial Requirements

1) Access to Financial Statements: Members can request and must be provided access to the nonprofit’s financial statements and auditor’s report.

2) Audit Requirements: The need for an audit depends on whether the organization is a PBC and its annual revenue. For instance, PBCs with annual revenue over $500,000 must have an audit, while those with lesser revenue can opt for a review engagement or, in some cases, pass a resolution to forgo both. Non-PBCs have more flexibility in opting out of audits and review engagements.

3) Extraordinary Resolutions: Decisions about audits can be made through an extraordinary resolution, which requires either an 80% favourable vote at the annual meeting or a unanimous written agreement from all members.

The review engagement process

From Rules for not-for-profit and charitable corporations (click here)

ONCA introduces a new process for reviewing a corporation’s financial records called the “review engagement.” This new process is less extensive than an audit and, as a result, generally less expensive.

Whether or not your corporation can use a review engagement instead of an audit or waive an audit and review engagement will depend on its revenue per financial year and whether or not it is a public benefit corporation. The following chart summarizes what type of financial review your corporation may need.

Type Of Corporation Amount of Revenue Per Financial Year Type of Financial Review
Public Benefit Corporation $100,000 or less Waive*
Public Benefit Corporation More than $100,000, but less than $500,000 Review engagement*
Public Benefit Corporation $500,000 or more Audit
Non-Public Benefit Corporation $500,000 or less Waive*
Non-Public Benefit Corporation More than $500,000 Review engagement*

*Approval to waive an audit or to waive both an audit and review engagement requires an extraordinary resolution, which is approval from at least 80 per cent of the votes cast at a special members’ meeting where there are enough members to take a vote or if all voting members consent in writing.

We emphasize the importance of reviewing your current structures and financial reporting practices to ensure compliance with the new regulations. The deadline is October 18, 2024, for updating your governing documents as per ONCA’s requirements. For details or more resources to help learn more about ONCA please go to https://www.ontario.ca/page/rules-not-profit-and-charitable-corporations.

The Canada Revenue Agency (CRA) understands that there are unique challenges for affected owners in the first year of the Underused Housing Tax Act (UHTA) administration.

To provide more time for affected owners to take necessary actions to comply, the Minister of National Revenue is providing transitional relief to affected owners. The application of penalties and interest under the UHTA for the 2022 calendar year will be waived for any late-filed underused housing tax (UHT) return and for any late-paid UHT payable, provided the return is filed or the UHT is paid by October 31, 2023.

This transitional relief means that although the deadline for filing the UHT return and paying the UHT payable is still April 30, 2023, no penalties or interest will be applied for UHT returns and payments that the CRA receives before November 1, 2023.

UHT Filing Help

Download the Complete 2023 Commentary Here >

 

On March 28, 2023, the Deputy Prime Minister and Finance Minister, the Honourable Chrystia Freeland, presented Budget 2023 – A Made-in-Canada Plan: Strong Middle Class, Affordable Economy, Healthy Future, to the House of Commons.

No changes were made to personal or corporate tax rates or to the inclusion rate on taxable capital gains. Some highlights include the following:

A. Personal Measures

  • Modifications to the alternative minimum tax regime focused on high-income individuals.
  • A one-time grocery rebate equal to two quarterly GST/HST credit payments.
  • Additional flexibility and possibilities with Registered Disability and Registered Education Savings Plans were introduced.

B. Business Measures

  • Modifications to the intergenerational business transfer rules to set requirements for activity by the children in the business and the transfer of control, equity ownership and management from the parents to the children.
  • Introduction of the employee ownership trust structure to provide a mechanism for business owners to transfer ownership in their private corporations to employee groups.
  • Several investment tax credits and other incentives were introduced or modified to encourage investment in clean energy.

C. International Measures

  • Confirmation of the government’s intention to introduce legislation implementing the income allocation rule and a domestic minimum top-up tax applicable to Canadian entities of multinational enterprises consistent with the OECD’s BEPS initiatives.

D. Sales and Excise Tax

  • Increasing the air travellers security charge, limiting increases to alcohol excise duties for one year and adjusting the cannabis excise duty remittance frequency.

E. Other Measures

  • New income-tested dental care program for uninsured Canadians.

F. Previously Announced Measures

  • Intention to proceed with previously announced measures, including those related to excessive interest and financing expenses limitations; reporting rules for digital platform operators; extension of the residential property flipping rule to assignment sales; substantive Canadian-controlled private corporations; the mandatory disclosure rules; the electronic filing and certification of tax and information returns; and GST/HST changes in respect of cryptoasset mining.

Download the Complete 2023 Commentary Here >

Many private Canadian corporations, trusts and partnerships will be exempt from the tax, but must still file the return (UHT-2900 Underused Housing Tax Return and Election Form), in order to claim their exemption.

The penalties for affected owners for non-filing are a minimum of:

  • $5,000 per individual per property, or
  • $10,000 for non-individuals
  • In addition to the minimum above penalties, add:
  • 5% of the tax calculated for the calendar year, plus
  • 3% of the tax calculated multiplied by the number of complete months that the return is late.

If you are in the business of constructing and selling residential houses, you are still required to complete a UHT return if you owned the property as of December 31, 2022. However, tax exemptions may apply under specific conditions related to the property’s completion date and sale status.

The new Underused Housing Tax (UHT) imposes a 1% annual tax on the value of residential real estate considered to be vacant or underused that is owned on December 31 of each year. The government indicated that the tax would target property owned by non-Canadians; however, the scope of filing requirements extends to many Canadian entities and individuals, including private corporations, partnerships and trustees of a trust. The first filings and taxes are due on April 30, 2023, but no penalties or interest will be applied for UHT returns and payments that the CRA receives before November 1, 2023.

This summary is intended to be a general guide in determining filing obligations and tax exposure. The specific legislation, regulations and CRA administrative policy should be reviewed for a complete and detailed understanding.

Canada Emergency Response Benefit to Help Workers and Businesses

In the early morning hours of March 25, 2020, Bill C-13 An Act respecting certain measures in response to COVID-19was introduced, and received Royal Assent by the afternoon.

Details on a number of measures previously announced (see Canada’s COVID-19 Economic Response Plan) were disclosed.  One common theme throughout the legislation is the ability to change specific amounts and rules by updating regulations rather than law, which means the government has more flexibility in making changes as events unfold.  The key items discussed in this document include:

  • Emergency Response Benefit;
  • GST tax credit special payment;
  • Canada child benefit special payment;
  • RRIF minimum withdrawal changes; and
  • Temporary wage subsidy for employers.

Read the full publication prepared by Video Tax News.

Temporary Wage Subsidy for Employers

Canada Revenue Agency has posted on their website how the Temporary Wage Subsidy for Employers will operate over the next 3 months.

Employers will reduce their monthly source deductions remittance (subsidy is 10% of remuneration you pay between March 18, 2020 and June 20, 2020, up to $1,375 per employee to a maximum of $25,000 per employer).
Large corporations with >$15 million in taxable capital are not eligible. Not for Profit Organizations, charities and Canadian Controlled Private Corporations that have a business number for payroll and pay wages are eligible.
Frequently asked questions and details about the Temporary Wage Subsidy are found here.
If you receive the subsidy, you have to report the total amount as income in the year in which the subsidy is received.
If you did not pay salary, wages, bonuses, or other remuneration to an employee between March 18, 2020, and June 20, 2020, you cannot receive the subsidy, even if you are an eligible employer.

Understanding Mortgage Payment Deferral

Homeowners may be eligible for a mortgage payment deferral up to 6 months to help ease financial hardship. For more details, click here.

Helping Canadians with the Economic Impact of the Pandemic

A summary of important changes to tax-filing and payment deadlines is found here.

Government Programs & Resources for Business

From the Chamber of Commerce website (www.chamber.ca or click here)
Canada’s COVID-19 Economic Response Plan: Support for Canadians and Businesses
Business Development Bank of Canada: Business continuity plan and templates for entrepreneurs
Business Development Bank of Canada: Support for entrepreneurs impacted by coronavirus
Coronavirus disease (COVID-19): Resources for Canadian businesses
Coronavirus disease (COVID-19): Employment and Social Development Canada
Export Development Canada: COVID-19
Work-Sharing Program: Temporary special measures
Government of Canada: Mass Gatherings Risk Assessment

The Government of Canada is taking immediate, significant and decisive action to help Canadians facing hardship as a result of the COVID-19 outbreak.

On March 18, 2020, the Prime Minister announced a new set of economic measures to help stabilize the economy during this challenging period. These measures, delivered as part of the Government of Canada’s COVID-19 Economic Response Plan, will provide up to $27 billion in direct support to Canadian workers and businesses.

Read the details for Individuals and Businesses here.