January 16, 2024
Re: 2023 New Trust Information Disclosure Requirements Applicable to All Trusts, Including Agency, Nominee or Bare Trust Arrangements (collectively “Bare Trusts”)
In December 2021, we advised you of the Government’s planned expanded Trust disclosure requirements that are to be filed as part of the T3 Income tax return (Schedule 15). The rules were originally planned to be implemented for December 31, 2021, year ends. In November 2022 we advised how the draft legislation was amended to include bare trust arrangements and how it was deferred once again.
The legislation has since been enacted and will apply to Trusts with December 31, 2023 year ends.
This includes a T3 reporting requirement for Bare Trust arrangements, such as corporate title holders of real estate. Even though the typical nominee titleholder corporation already has to file a T2 corporate tax return, they will now also be required to file a T3 Trust return with a December 31 year end. This is the case for Bare Trusts notwithstanding that the nominee corporation may have a different fiscal year end for corporate income tax purposes.
Trusts other than Graduate Rate Estates will generally have December 31, 2023 year-ends. Trust tax returns must be filed within 90 days after the fiscal year-end. For 2024 the deadline is extended to April 2, 2024.
A penalty will apply if a trust is required to file a T3 return and fails to do so on time or fails to provide the required information about beneficial ownership. The penalty will be equal to $25 per day late, with a maximum penalty of $2,500.
If there is an intentional failure to file, misstatement, or omission of fact, then an additional penalty may apply. The additional penalty will be equal to 5% of the maximum value of property held during the relevant year by the trust, with a minimum penalty of $2,500.
The CRA has announced on their website that they will waive penalties for late filed 2023 Bare Trusts.
“However, if the failure to file the T3 Return and Schedule 15 for the 2023 tax year was made knowingly or due to gross negligence, a different penalty may apply. This penalty will be equal to the greater of $2,500 and 5% of the highest amount at any time in the year of the fair market value of all the property held by the trust.”
Unless CRA clarifies its ambiguous position, it is best to file by April 2, 2024.
Information that Must be Disclosed on the T3 Trust Return
The new rules require disclosure of the name(s) of the Settlor, Trustees, and Beneficiaries of a given trust as well as their addresses, dates of birth, jurisdiction of tax residence, social insurance numbers, business numbers or trust account numbers. This information must also be disclosed in respect of a person with influence over Trustee decisions. Where a beneficiary is contingent or not yet in existence, it is recommended to provide an extract of the trust deed to make the disclosure complete.
Exceptions to Requirements to Disclose
There are some exceptions to the disclosure requirements. For example, the new requirement is not applicable to Graduated Rate Estates (generally the first 36 months of an estate), registered charities, non-profit organizations, trusts with assets of less than $50,000 in value (whose value consists of specific assets such as cash and public company shares), Qualifying Disability Trusts and trusts that are less than three months old.
Also excluded are trusts required under the relevant rules of professional conduct or the laws of Canada or a province to hold funds for the purposes of the activity that is regulated under those rules or laws, provided the trust is not maintained as a separate trust for a particular client or clients. In addition, Information subject to client-solicitor privilege are excluded from disclosure.
Unique Considerations for Bare Trust
Limited guidance exists with respect to Bare Trust disclosure. However, the following is based on general knowledge and discussions with legal tax colleagues:
- The trust name, in the case of a corporation, would be the Bare Trust corporation’s name followed by the word “Trust”.
- The Settlor of a Bare Trust would typically be the beneficial owner(s) of the underlying property.
- The Beneficiaries would be the owners of the underlying property.
- The Trustees would generally be the persons responsible for decision making in respect of the Bare Trust arrangement. The Trustees may be identified within the Bare Trust agreement.
Alternatively, the directors and/or shareholders of the Bare Trust corporation may be responsible for decision making and their information would be disclosed.
All trust agreements should be reviewed to properly comply with the new trust disclosure requirements.
Please see the attached worksheet to guide you in completing the required information to provide to us.
If you require our assistance, please contact your MB partner.
Additional information could be found at the link below, including how to quickly obtain a Trust Account Number: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