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Home » Tax News » Unveiling the Bare Truth: Could You Be Required to File a Trust Return Without Knowing It? New 2023 Reporting Obligations.

Unveiling the Bare Truth: Could You Be Required to File a Trust Return Without Knowing It? New 2023 Reporting Obligations.

Bare Trust

Are you ready for the upcoming changes to trusts, including bare trusts, and the new reporting requirements? The new rules are set to take effect for the 2023 tax year. To help you navigate these changes, here’s a comprehensive guide to what you need to know.

What is a Bare Trust? 

A bare trust is a specific kind of trust in which the trustee has no obligation other than to deal with the trust property as instructed by the beneficiaries. The legal title of the trust property is held by the trustee, but the beneficiary has the beneficial ownership of the property. A bare trust is essentially a principal-agent relationship, which means the beneficiary of a bare trust has complete control over the trustee’s action as it relates to the trust property and the trustee has no independent power, discretion, or responsibility over the property. 

Bare Trusts are Commonly Used To:

  • Gift a minor child or children with property who cannot hold a legal title
  • Ensure privacy and maintain the anonymity of the true owner of a property when the ownership information, such as land registration records, which are public record 
  • Minimize provincial land transfer taxes or probate fees in transactions where the beneficial ownership of a property is being transferred between multiple parties, but there is no change to the legal title held by the trustee
  • Facilitate efficient property transfer in corporate reorganizations where the legal ownership of property may otherwise need to be transferred and registered multiple times, or if the legal ownership cannot be transferred at the desired time due to administrative issues
  • Hold legal title of a property on behalf of a group of owners in a joint venture or partnership

2023 Trust Reporting Obligations

  • Expanded Filing Obligations: Most trusts, bare trusts and those that have never filed before, will be required to file a T3 Trust Income Tax and Information Return annually. This change aims to improve tax transparency and compliance.
  • Enhanced Reporting Requirements: Trusts will need to report additional information, such as details about all trustees, beneficiaries, settlors, and any individuals or entities exerting control over trustee decisions. This information will be reported on Schedule 15, Beneficial Ownership Information of a Trust, filed along with the T3 return.
  • Penalties for Non-Compliance: Failure to file the required returns or provide accurate information can result in penalties. The gross negligence penalty for knowingly or grossly negligently failing to file is significant, with a minimum penalty of $2,500.
  • Exemptions: While many trusts will be subject to the new rules, certain types of trusts are exempt, including those with minimal assets, certain government-funded trusts, and others.

What Should I Do to Prepare for the New Trust Reporting?

  • Identify Affected Trusts: Review all trusts and documentation to determine which ones, including bare trusts, will now be required to file under the new rules.
  • Gather Information: Collect all necessary information for reporting, including details about trustees, beneficiaries, settlors, and others with control over trustee decisions.
  • Communicate with Experts: Discuss the New Reporting Obligations with Experts (Accountants, Financial Advisors, etc.)
  • Review Exemptions: Carefully consider the exemptions to determine if any apply to your trusts.
  • Stay Informed: Keep up to date with developments and additional guidance from the CRA.

These changes represent a significant shift in trust reporting requirements and compliance obligations, including bare trusts. By understanding these new rules and taking proactive steps to prepare, you can ensure a smooth transition and avoid potential penalties for non-compliance.

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