Introduction
Under new Canadian legislation, bare trust arrangements are now subject to the filing requirements of a T3 Trust Income Tax and Information Return, where they previously were not required to. This new legislation applies to trusts with tax years ending on or after December 31, 2023, with significant penalties for failure to comply.
What is a bare trust arrangement?
The CRA defines a bare trust as follows:
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.
Common examples of bare trusts include, without limitation:
- when a person holds registered title to real property, while another person retains beneficial ownership; and
- when a person holds legal title of property on behalf of a group of owners in a joint venture or partnership.
Failure to file a return
A penalty of $25 for each day late, with a minimum penalty of $100 and a maximum of $2,500 will be imposed for a failure to file a T3 Return.
False statement or omission
A penalty of 5% of the maximum value of property held by the trust during the relevant year, with a minimum penalty of $2,500 will be imposed in the following situations:
- a failure to file a return knowingly or due to gross negligence;
- a false statement or omission knowingly or due to gross negligence; or,
- failure to respond to a CRA demand to file.
Next Steps
We suggest you speak with your accountant or tax advisor to ensure they file a T3 Return on behalf of your bare trust and they have all required documents and information, to file properly.
If you have any questions on bare trusts or would like advice related to your T3 filing obligations, please contact us at 604-688-4900 or by email at morgan@barbeau.co or paul@barbeau.co.