Canada’s New Trust Reporting Regime Now Requires Bare Trusts to file Tax Returns 

Under the previous rules, a trust that did not have any activity and did not have an income tax payable was not required to file a T3 “Trust Income Tax and Information Return”.  

With new rules, effective with trust taxation years that end after December 30, 2023, the exceptions have been drastically limited to a trust that has been in existence for three months at the end of year or holds less than CDN $50,000 in certain assets throughout the tax year.  

Bare Trusts are now Subject to the T3 Filing Requirements 

The new reporting requirements apply to bare trusts. While the term “bare trust” is not defined in the Income Tax Act, the Canada Revenue Agency (CRA) defines it as “a trust 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 all of the trust’s property.”    

Bare trusts are commonly used in real estate – e.g., a bare trust is established to hold title to real estate while the beneficial ownership remains with the beneficiary of the trust. Other practical examples of bare trusts that would be required to file tax returns under these rules include nominee corporations and in-trust accounts.  

Expanded Disclosure Requirements 

A bare trust filing a T3 is required to report the name, address, date of birth (in the case of an individual), residency and tax ID number for each settlor, trustee, beneficiary, and protector (individual with the ability to exert influence over trustee decisions regarding the trust income or capital). Note that the definition of “settlor” is broad and may include individuals undertaking common tax and estate planning strategies. 

When to File 

• The T3 return is due within 90 days after the end of the trust’s taxation year. 
• For trusts with a December 31, 2023, year-end, the deadline is April 2, 2024 (since March 30, 2024, falls on a weekend, the deadline is extended to the first business day after the deadline). 

Penalties for Non-compliance 

New penalties apply for failing to file a T3 return as required, or for omission, or a false statement. The penalty is the greater of 5% of the fair market value of the trust assets during the year or CDN $2,500.  

The new penalty is in addition to the existing penalties of CDN $100 per day (maximum CDN $2,500) for failing to file a T3.  

CRA has announced temporary penalty relief from the existing penalty for bare trusts failing to meet the April 2, 2024, deadline. Note however, the new penalty may still apply.  

Quebec 

The new rules also apply for Quebec effective the same date as the federal trust reporting rules. Quebec will establish its own penalties for failing to file a Quebec trust income tax return (TP-646-V) for a bare trust by the due date.  

Please consult your Canadian tax professional to learn more about the new trust rules.  

How Abitos can assist

AbitOs specializes in the unique tax needs of high net-worth entrepreneurs, including those with international lifestyles, LATAM, Canadian, and other non-US entities doing business in the U.S., as well as U.S. entities doing business in those countries and across the globe. If you would like to benefit from our expertise in these areas or if you have further questions on this Alert, do not hesitate to contact us.