CRA bare trusts reporting

Tax update: CRA exempts bare trusts from new trust reporting requirements

bare trusts reporting

In an abrupt change of policy, the Canada Revenue agency has announced that it will exempt bare trusts from filing a T3 Income Tax and Information Return, including Schedule 15 (Beneficial Ownership Information of a Trust), for the 2023 tax year. The CRA still reserves the right to request these filings directly in specific circumstances.

The CRA says it will further clarify trust filing requirements in the coming months and will communicate this information as it becomes available. Taxpayers are advised to contact their Chartered Professional Accountant or lawyer to determine whether they are engaged in a bare trust arrangement—which has proven a source of confusion both for taxpayers and many tax professionals.

The KRP LLP tax team will provide updates on revised trust compliance requirements as they become available.

With the change to exempt bare trusts, the T3 Return and Schedule 15 filing deadline for other affected trusts remains April 2nd, 2024. Penalties for bare trust non-compliance due to gross negligence would have been significant—the greater of $2,500 and 5 per cent of the highest fair market value of all the property held by the trust at any time in the year.

As outlined in a previous blog by KRP LLP Senior Tax Specialist Max Khavkhanov, the Canada Revenue Agency recently revised trust reporting rules, requiring all trusts with taxation years ending after December 30th, 2023, to file an annual T3 return, along with additional beneficial ownership information (Schedule 15 of the annual T3 return).

Bare trusts were also included under this expanded filing regime, which proved onerous, burdensome and difficult to understand.

Despite the CRA recently waiving penalties for late-filed bare trust returns—except in situations of gross negligence—the exact scenario in which a taxpayer was deemed to be in a bare trust situation remained unclear. Under the previously updated reporting rules, bare trusts could be exempted from filing a T3 return if they were classified as a listed trust, which includes, but is not limited to, trusts that have been in existence for less than three months at the end of the year; trusts holding assets with a total fair market value not exceeding $50,000 throughout the year; Graduated Rate Estates (GRE); Qualified Disability Trusts (QDT), and more.

The bare trust change will come as a relief to anxious taxpayers, many of whom sought relief from the new rules while incurring significant professional services fees to meet their compliance obligations.

The KRP LLP tax team will provide further updates as they become available. For more information, contact us today.

Armando Iannuzzi, Co-Managing Partner

Armando Iannuzzi

905-946-1300, x. 239