The new and enhanced trust reporting rules will begin applying to formal and informal trusts, including so-called ‘bare trusts’ with a tax year ending after December 30, 2023. This means the rules are effective for all trusts with a December 31, 2023 year-end. Below is a summary of the changes.

Additional Disclosure Requirements
The current T3 trust income tax and information return only requires limited information pertaining to the trustee(s) of the trust. Under the new rules, trusts must disclose additional information with respect to all trustees, beneficiaries, settlors and anyone with the ability to exert control or override trustee decisions. This additional information includes:

• Name
• Address
• Date of birth
• Jurisdiction of residence
• Taxpayer identification number (e.g. Social Insurance Number, Business Number, Trust Identification Number)

The above information is now required to be reported on the new T3 Schedule 15.

Expanded Filing Requirements
Under the new rules, the trust filing requirements have broadened to include trusts that have no income tax liability and no distributions or allocations to beneficiaries during the year.

Most notably, bare trust arrangements, typically not documented in writing, are now subject to the trust filing requirement. For tax purposes, a bare trust is an 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 the trust property. Some limited examples of bare trusts may include:

• A parent on title to a child’s home for financing purposes;
• An adult child on title to a parent’s home for estate planning purposes;
• A parent or grandparent holding an investment or bank account in trust for a child or grandchild and;
• A corporation on title to an individual’s real estate property.

There are limited exceptions to the above rules. To find out more about the exceptions as well as an overview of the rules, refer to the CRA website here.

Thousands of Canadian taxpayers may already be acting as bare trustees for their family members yet don’t realize these expanded filing requirements affect them. We recommend you complete a thorough review of all of your assets, investments, liabilities and business/financial arrangements and identify instances where you may be considered as a trustee of the so-called bare trust. Where applicable, you must file a T3 income tax and information return or face penalties and/or other unfavourable tax implications. A prudent place to start is to identify assets where the beneficial owner(s) differ from the legal owner(s).

Due to the uncertainty surrounding the new rules, the CRA is adopting an education-first approach to compliance and has recently announced relief by waiving late filing penalties for bare trusts where the 2023 T3 and Schedule 15 are filed past the April 2, 2024 deadline. This waiver, however, does not apply to the failure to file penalty where the return is not filed knowingly or due to gross negligence.

We recommend speaking to your tax advisor and legal counsel to determine if the new and enhanced trust reporting rules apply to you.