New tax rules have introduced tax reporting requirements applicable to bare trusts. For tax years ending after December 30, 2023, unless specific conditions are met, a bare trust is required to file a T3 Tax Return, along with a completed T3 Schedule 15 to report beneficial ownership information. Non-compliance with these requirements can lead to substantial penalties.
What is a bare trust?
A bare trust for income tax purposes is an arrangement whereby the trustee can reasonably be considered to act simply as agent for the beneficiary under the trust. Bare trusts are often used in situations where legal ownership needs to be separated from beneficial ownership for legal, administrative or tax purposes.
How do the new trust reporting rules apply to bare trusts?
Bare trusts are subject to the new trust reporting rules for tax years ending after December 30, 2023. Accordingly, a bare trust must annually file a T3 Return, accompanied by a duly completed Schedule 15, unless it qualifies for an exemption from the reporting requirements.
Bare trusts that have been in existence for less than three months, or that hold assets with a total fair market value not exceeding $50,000 throughout the tax year (provided the holdings are limited to money, government debt obligation, and listed securities) may be exempt from the new reporting requirements.
Significant penalties may be imposed for failing to comply with the new trust reporting requirements. For more information, visit the penalties section on the Government of Canada’s T3 Trust Guide — 2023.
Disclaimer: This blog provides educational information on legal matters and is not tailored legal advice for individual situations and should not be construed as legal advice. For personalized guidance, consult with a qualified lawyer.
Written by: Toby Zhou
* Please note that the information in this article is not intended as legal advice, but rather as a general overview on the subject. If you are seeking legal advice, please consult with a lawyer.
