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Gregory, Harriman & Associates LLP Blog

 

Starting with the 2023 tax year, newly amended tax legislation will result in additional tax reporting requirements that will create a T3 Trust return filing requirement for many taxpayers that prior to 2023, did not have any trust reporting obligation. Most significantly, these new T3 Trust return reporting requirements will apply to many ownership scenarios where properties are jointly owned or owned in joint title.

These new rules were originally intended to create additional beneficial ownership reporting requirements for Canadian trusts, however, an expansion of the rules to include “Bare Trusts” has unfortunately created an ongoing T3 Trust Return filing requirement that will often apply in scenarios where assets are held in joint title for estate or administative purposes, where one or more of the joint owners does not hold a beneficial ownership interest in the property.

There are several other common Bare Trust scenarios which will result in a T3 Trust Return filing requirement starting in 2023, even if no filings were required under the previous legislation. The following are some of the most common scenarios which will create a T3 Trust Return filing requirement starting with the 2023 tax year:

  • A beneficiary or other person is listed as a joint owner to a bank account or investment account for estate planning purposes only.

  • A bank or investment account is held in the name of one person, with the intention that the funds in the account are held for the benefit of another person (often shown as “In Trust For” or “ITF” on statements).

  • A beneficiary or other person is listed as a joint owner on land title for estate planning purposes (this scenario is commonly seen where a parent has added a child on joint title to land or other real-estate property for estate planning purposes only, in order to avoid the requirement for probate on the passing of the parent)

  • A co-signor is registered on title to property as joint owner for the purpose of securing mortgage financing (this scenario is commonly seen where a child purchases a home and parent is registered on title for the property in order to assist the child in securing financing).

  • Person X is listed as the legal owner of an asset, but there is an intention or agreement in place that beneficial ownership of the asset is retained by Person Y (this is the simplest example of a Bare Trust and is commonly seen with corporations where an account or other asset is registered in an individual owner/director’s name, however, the asset is treated as a corporate owned asset for all other purposes).

  • Person X owns a parcel of land, but Person Y has constructed a house or other building situated on that land for their own use.

  • Family trusts or other formal trusts with no income. Although considered a formal trust and not a Bare Trust, many family trusts or other types of personal trusts which did not previously have a T3 Trust Return filing requirement due to the specific exceptions, will need to file annual T3 Trust Returns starting in 2023, even if there is no income earned or taxes payable for the year.

Each of the above scenarios is an example of circumstances where the CRA has confirmed that they feel that either a formal trust or Bare Trust relationship exists. Under previous legislation, exceptions to T3 Trust Return filing were available which provided that a trust return did not need to be filed in certain cases (i.e. if no income was earned by the trust and no assets distributed to beneficiaries during the year), and as a result most Bare Trusts were not previously required to file T3 Trust Returns.

Starting in 2023, this new legislation will require most trusts to file an annual T3 return in order to report certain information for persons involved with the trust (i.e. trustees, settlors, beneficiaries, and other persons connected with the trust), and it has been confirmed that Bare Trusts will be included in this new filing requirement.

 

The deadline for filing 2023 T3 Trust Returns is April 2, 2024.

Current penalties in place prior to 2023 for not filing a T3 return when required will continue to apply. In addition, further penalties can be assessed for failure to provide information required under the new 2023 Trust reporting rules. The penalty is $25 for each day late, with a minimum penalty of $100 and a maximum of $2,500.

In addition, a significant gross negligence penalty can also be applied where a failure to file the return was made knowingly or due to gross negligence. The additional penalty would be five per cent of the maximum value of property held by the trust during the relevant year, with a minimum penalty of $2,500. This penalty would also apply to false statements and omissions amounting to gross negligence as well as a failure to respond to a CRA demand to file.

 

In advance of the upcoming T3 return filing season, it will be important to review your ownership of assets and identify any scenarios where a trust relationship, including a Bare Trust, may be present.

If you feel as though these new T3 Trust reporting rules may apply to you for the 2023 tax year, and would like GH&A LLP’s assistance in preparing and filing the required return, please advise our office no later than January 31, 2024 so that we can begin planning for the 2023 Trust return filing season.

 

For more information on the new T3 Trust Return reporting requirements coming into effect for 2023 visit the Canada Revenue Agency webpage below.

https://www.canada.ca/en/revenue-agency/services/tax/trust-administrators/t3-return/new-trust-reporting-requirements-t3-filed-tax-years-ending-december-2023.html

 

 

Disclaimer

The information in this publication is current as of January 10, 2024.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Gregory, Harriman & Associates LLP to discuss these matters in the context of your particular circumstances. Gregory, Harriman & Associates LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.