Everything to know about the CRA’s new requirements
By Jim Olson, CPA, CMA, MBA, KPMG Enterprise Tax
With busy schedules, the last thing most people want to think about is whether they will have an additional filing obligation to the Canadian Revenue Agency (CRA), caused by an express trust arrangement that they may not be aware of.
Trusts (including bare trusts), with limited exceptions, will have to report certain beneficial ownership information on an annual basis for taxation years ending after December 30, 2023, under the new trust reporting requirements.
Due to these requirements, enacted on Dec. 15, 2022, more trusts will have to begin filing a T3 (a trust return) annually. The additional information that must be reported includes the name, date of birth, tax identification number, country of residence and address of the trustee(s), settlor(s), beneficiary(ies) and controlling person(s) (e.g., protector(s)) of the trust.
Despite a trust arrangement not having had to file a T3 in the past, due to the new CRA requirements, you are now obligated to file a return that has a Schedule 15 (which is where the information on trustee, setter and beneficiary will go).
Penalties for non-compliance are $25 per day, with a minimum penalty of $100 and a maximum penalty of $2,500. If the failure to file was made knowingly, there is an additional penalty of five per cent of the highest fair market value of property held by the trust, with a minimum penalty of $2,500.
That’s the formal messaging, but what does this mean for most of us? What are some situations that would create a trust or bare trust arrangement?
A bare trust arrangement is formed when a trustee holds and manages assets on behalf of a beneficiary. Unlike other types of trusts, a bare trust has very limited powers for the trustee, and the beneficiary is considered the absolute owner of the trust property. These situations are very common and often don’t include formal trust documents.
Some examples of bare trusts are:
- Individuals who are added as a co-owner of a bank or investment account, or on title to real property for administrative ease during an owner’s lifetime or for estate purposes
- Corporations that hold title to real property on behalf of a beneficial owner (which is a common arrangement in the real estate sector)
- Real property managers who have deposit revenues from which they pay expenses on behalf of the beneficial owner
If you find yourself thinking you would rather not bother with the filing, think again. Penalties for non-compliance are $25 per day, with a minimum penalty of $100 and a maximum penalty of $2,500. If the failure to file was made knowingly, there is an additional penalty of five per cent of the highest fair market value of property held by the trust, with a minimum penalty of $2,500. So, if you are on title to a house or farmland for estate purposes, five per cent of the fair market value could be significant.
However, the news is not all bad. The CRA has created a number of exemptions that will not have to comply with this new requirement. Some exemptions include:
- Trusts in existence for less than three months at the end of the tax year
- Trusts that hold assets with a total fair market value that does not exceed $50,000 throughout the tax year (some restrictions on the assets)
- Certain regulated trust accounts, such as a lawyer’s general
trust account - Trusts that are registered charities or a paragraph 149(1)(I) non-profit organization
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