Bare trust arrangements and the new trust reporting regime in Canada

Bare trust arrangements and the new trust reporting regime in Canada

Under new legislation for trust reporting in Canada, bare trust arrangements are now subject to the filing requirements of a T3 Trust Income Tax and Information return. There are penalties involved for failure to comply that may be significant.

What are the new trust reporting rules?

Under the Income Tax Act, the scope of trust arrangements (with certain exceptions) that are now required to file a T3 Trust Income Tax and Information Return annually has been broadened. This includes bare trust arrangements as well as most other Canadian resident trusts that previously did not need to file an annual return. Additionally, there is now enhanced information disclosure requirements for trust arrangements.

The new reporting requirements are effective for trusts with tax years ending on or after Dec. 31, 2023.

What is a bare trust arrangement?

A bare trust arrangement is defined by the government as "an 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." This definition is very broad in application and some of the arrangements included are property held by a nominee corporation, property in which someone is on title for the purpose of estate planning, and in-trust-for accounts.

What are the exceptions?

Some types of trusts are exempt from the enhanced reporting requirements, including:

What information is required to be reported?

Trusts that fall under the new rules are required to file a T3 trust return and disclose additional information on all “reportable entities”, which include all of the trust’s settlors, trustees, beneficiaries as well as any person who has the ability to exert control or override trustee decisions (such as a protector).

The information required for each reportable entity is provided on the recently released Schedule 15, Beneficial Ownership of a Trust and should be filed with the T3 return.

The information required includes name, address, date of birth (for individuals), country of residence and taxpayer identification number (social insurance number, trust account number, business number or foreign tax number).

Filing and deadline

The T3 Trust Income Tax and Information returns, including any relevant schedules, are filed on an annual basis with a deadline of 90 days after the calendar year-end. For 2023 T3 returns with a calendar year-end, this will be a filing deadline of April 1, 2024.

What are the penalties?

There are penalties associated with failure to comply that may be significant.

Failure to file a return

Penalty of $25 for each day late, with a minimum penalty of $100 and a maximum of $2,500.

False statement or omission

Penalty of 5% of the maximum value of property held by the trust during the relevant year, with a minimum penalty of $2,500, in the following situations: