Update – November 2, 2024: At the end of October the CRA officially announced that it “will not require bare trusts to file a T3 Income Tax and Information Return, including Schedule 15 (Beneficial Ownership Information of a Trust), for the 2024 tax year, unless the CRA makes a direct request for these filings”. The legislation for the remaining proposed changes discussed below is yet to be enacted.
The reporting rules are changing again – and it’s good news for bare trusts.
After much confusion surrounding the new trust reporting rules in 2023, the Ministry of Finance has introduced several key amendments as part of their August 12 Proposals. With broader exceptions and an expanded list of exempted trusts, these changes aim to limit the number of trusts subject to the new requirements.
Background
On Dec 15, 2022, the Canadian government enacted new legislation mandating a more comprehensive filing requirement for trusts, effective for taxation years ending after December 30, 2023. Previously, only trusts that paid tax, disposed of capital property or distributed income to trustees were subject to reporting requirements. The new rules, however, require the majority of Canadian trusts, including bare trusts, to file an annual T3 and Schedule 15 return.
What is a T3 and Schedule 15?
Schedule 15 (“Beneficial ownership information of a trust”) is a form that must be completed as part of the T3 Trust Income Tax and Information Return. It requires detailed information about all the trustees, beneficiaries, settlors, and anyone who can exert influence over trustee decisions regarding the appointment of income or capital of the trust.
2023 Bare Trust Exemption
When first enacted at the end of 2022, the new reporting requirements caused much confusion among Canadian taxpayers. With bare trusts now subject to the enhanced rules, trusts that had never filed a T3 or Schedule 15 found themselves unprepared for annual reporting. To allow affected stakeholders more time to comply, the government provided one-time administrative relief just days before the April filing deadline, exempting bare trusts from the new reporting requirements for the 2023 tax year.
August 12 Proposals
Recently, the Department of Finance proposed several amendments to the new trust reporting regime as part of their August 12 Proposals. These changes provide further relief from reporting requirements and aim to greatly reduce the number of trusts affected.
2024 Bare Trust Exemption – Finance has proposed an additional year of relief for bare trusts. This would exempt bare trusts from having to file a T3 and Schedule 15 for the 2024 tax year (as of October 29, this exemption is in effect).
Broader Exceptions – Previously, trusts with a total FMV of $50,000 or less were exempt from the new rules provided the assets held within the trust were of a certain type. Finance has proposed removing this restriction so that trusts holding any asset type can still qualify for this exception.
There’s also good news for family trusts and joint accounts between parents and adult children. Under the proposed amendments, trusts with individuals as trustees, where each beneficiary is related to each trustee, will not be required to file a Schedule 15. To qualify for this exception, the trust can only hold certain assets (including money, personal use property, GICs and shares) and the total FMV of the trust must not exceed $250,000.
Expanded Exemptions – To further reduce the number of trusts captured by the new reporting requirements, the August 12 Proposals also expand the list of exempt trusts. These exemptions apply to express trusts and civil law trusts which meet any of the following conditions:
- The trust holds property solely for the benefit of a partnership, where each legal owner is a partner (excluding limited partners)
- The trust holds real estate which qualifies as a principal residence and is held for related individuals or the spouse of the legal owner
- The trust holds Canadian resource property held solely for the benefit of publicly-listed corporations, a corporation they control, and certain partnerships of publicly-listed corporations
- The trust holds property that is under a court order
- The trust holds funds received from the Crown (specific criteria apply)
Final Thoughts
If enacted, these proposals would exempt bare trusts from enhanced reporting for 2024, and reduce the number of trusts subject to the new requirements for subsequent tax years. While this is welcome news for Canadian taxpayers, trustees should monitor the situation closely and be ready to file a T3 and Schedule 15 if necessary.
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This article was written by the NVS Professional Corporation team, your knowledgeable Barrie and Markham accountants. The content is intended as a general guide for informational purposes only. For specialist advice tailored to your specific situation, please reach out to our expert team.
