New trust reporting requirements
Reporting for existing trusts will be time-consuming but not difficult. The fly in the ointment is "bare trusts" which may exist without the participants even being aware of it.
The term "bare trust" is not defined in the Income Tax Act. However, a bare trust for income tax purposes is a trust arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust's property.
A trustee can reasonably be considered to act as agent for a beneficiary when the trustee has no significant powers or responsibilities, the trustee can take no action without instructions from that beneficiary and the trustee’s only function is to hold legal title to the property. In order for the trustee to be considered as the agent for all the beneficiaries of a trust, it would generally be necessary for the trust to consult and take instructions from each and every beneficiary with respect to all dealings with all of the trust property.
A common example of a situation where a bare trust arrangement can exist is when, for privacy reasons, a property developer establishes a bare trust arrangement that will hold registered title to real property, while the developer retains beneficial ownership.
So you should first confirm if a bare trust exists after which, the following information will be required if this is the fist year the bare trust is filing a return:
- copy of the trust agreement
CRA recognizes that in the absence of formal document, the following will apply:
As many different arrangements can be trusts, if there are no written documents for the trust, please submit a written summary (typewritten or legibly printed) of the nature of the trust arrangement, including the title "Summary of [enter trust name]". The written summary should include the date of creation of the trust and the full names of the trustees, settlor and beneficiaries.
Bare trusts will have to apply for a trust number for a return to be filed.
It is incomprehensible how CRA is going to deal with this tsunami of information and what they plan to do with it.
No change in CRA rules is complete without penalties! These penalties are equal to the greater of CA$2,500 or 5% of the highest total fair market value of all property held by the trust in the year and $25 a day for each day the return is late, from a minimum of $100 to a maximum of $2,500 if there is a balance due.
CRA will provide relief to bare trusts by waiving the penalty payable under subsection 162(7) for the 2023 tax year in situations where the T3 Return and Schedule 15 are filed after the filing deadline.
Read more details here.
Apply for a trust number - Fillable PDF (t3app-fill-23e.pdf)
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