New Bare Trust Reporting Requirements
The Department of Finance originally announced additional reporting requirements in the 2018 Federal Budget requiring certain trusts to provide additional information on an annual basis as part of their tax filings.
Fast forward to August 9, 2022, the Department of Finance released further draft legislation with respect to these new trust reporting rules. Although much of what is included in the legislation was expected, there were some surprises. One major surprise that came out of the legislation, is that these new rules will apply to bare trust arrangements.
What is a Bare Trust?
A bare trust exists where a person, the trustee, has been given legal title to property and has no other duty to perform or responsibilities to carry out as trustee, in relation to the property given in the trust. The sole duty of a bare trustee is to convey legal title to the trust property on demand and according to the instructions of the beneficiary as provided for within the trust document. The bare trustee does not have any independent power, discretion, or responsibility pertaining to the trust property. In such cases, the beneficial owner retains the right to control and direct the trustee in all matters relating to the trust property.
The trustee in a bare trust situation may be a nominee corporation. It is quite common in many real estate developments for a nominee corporation to hold title to the property in a bare trust arrangement. Both bare trust corporations and individual trustees are required to file a T3 trust return providing information as required by the legislation, where previously they had no T3 filing requirement.
What is Required Under the Legislation
Under the legislation, trusts are required to file a T3 for years ending after December 30, 2022. Since these trusts are deemed to have a calendar year-end for T3 reporting, they will have to file a 2022 T3. The T3 is due 90 days after the year-end or March 31, 2023. It should be noted that in leap years the filing deadline becomes March 30. Many bare trust corporations file a T2 corporate tax return based on an off calendar year-end. However, their T3 filing requirement will still be based on a calendar year-end.
The information must be reported annually on each trustee, beneficiary and settlor of the trust. The information must also be provided on each person that has the ability (through the terms of the trust) to exercise control over trustee decisions regarding the appointment of income or capital of the trust.
Specifically, the bare trust is required to report the following information for each of these individuals:
- Date of birth (if an individual, other than a trust)
- Jurisdiction of residence
- Taxpayer identification number
In addition, a beneficial ownership schedule needs to be completed as part of the filing.
There are a couple of exceptions that apply to bare trusts. First, they will not have to file if they have been in existence for less than three months. Second, trusts that hold assets not exceeding $50,000 in total fair market value throughout the year (where the only assets are cash, certain government debt obligations, a share, debt, or right listed on a designated stock exchange, a share of a mutual fund corporation, a unit of a mutual fund trust, and an interest in a related segregated fund) will not be required to file.
The legislation also includes penalties for late filing and failure to file. Trusts are 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 the return 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. Therefore, a trust holding property with a fair market value of $1 million could attract a penalty of $52,500.
We suggest that you start now to begin gathering your information as it may take some time in some cases. In addition, if the trust has not filed a T3 return before, it will require obtaining a trust number from the CRA prior to filing. If you have any questions, your DJB advisor is here to help.