Blog | 27 Sep 2022

New trust reporting requirements

By Stephanie Jindal, Tax Partner | Tax

Last year, we published an article detailing the new trust reporting requirements for any express trusts resident in Canada and certain deemed non-resident trusts. If you missed the article, you can find it here.

One notable change is that these new reporting requirements apply also to bare trusts, which previously did not have a requirement to file an annual trust return.

Bare trusts

What are bare trusts?

Bare trusts are usually used to hold the legal title of a property on behalf of the beneficiary owners. The property is held in the name of the trustee, but the trustee has no discretion over the assets held in trust. The trustee follows the instructions of the beneficiary in relation to the assets held in trust. The beneficial owner retains all control and rights over the trust property.

Usage of bare trusts

Bare trusts are often used in the following situations:

  • Holding legal title to real estate property
  • Holding investments in trust for minors
  • Holding title to assets for probate planning purposes
New reporting requirements for bare trusts

Under the new reporting requirements, bare trusts will be required to file an annual T3 trust income tax return and report the name, address, birth date, residence and tax number of the following:

  • Settlor
  • Trustees
  • Beneficiaries
  • Each person with the ability (through the trust terms or a related agreement) to exert influence over trustee decisions regarding the appointment of income or capital of the trust

Keep in mind that the new filing requirements for bare trusts will not change the income tax treatment.

Trusts subject to the new requirements that fail to file a trust income tax return will be subject to penalties equal to $25 for each day it fails to file, with a minimum penalty of $100 and a maximum penalty of $2,500. If the failure to file was made knowingly or due to gross negligence, an additional penalty equal to 5% of the maximum fair market value of property held during the relevant year by the trust will apply, with a minimum penalty of $2,500. For instance, if a bare trust holds real estate property with a fair market value of $50 million, the penalty could be as high as $2.5 million.

The new trust reporting requirements have created uncertainty and a high burden for taxpayers. If you are unsure as to whether or not you have an express or bare trust that could fall into these new rules, please feel free to contact us.

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