For 2023 and following years, the CRA is becoming more invasive and demanding more information, backed by heavy penalties for disobedience, especially with regard to assets “held in trust” and real property.
A Trust is can usually be defined as one party holding assets “in trust” for another party. The general rule is that if the Legal owner (Trustee) is different from the person who benefits from the use of the assets (Beneficiary), a “Bare Trust” exists.
As of March 28, 2024, Bare Trusts will not require a T3 unless the CRA makes a direct request for these filings.
If no formal, legal document exists to establish the terms of the Trust, the CRA now expects an informal document to be prepared, reflecting the following:
1) Settlors – The person(s) contributing assets to the Trust (investments, assets)
2) Trustees – The person(s) managing the assets and deciding how to allocate income and assets.
3) Beneficiaries – The person(s) that may benefit from the income or use of assets.
The informal agreement should also include the date the “agreement” began, and if there is an end date (sometimes when assets get transferred on a settlor’s death). If your Bare Trust holds assets over $50,000, you will also need to file a Trust return. The trust return will have NO tax owing, but there are penalties for failure to file. You will not need to file for an RESP account.
The parties involved may include corporations. For example, if a corporation holds assets in trust for a shareholder (like Foreign Real estate – US Cottage, etc), this also requires to be reported in a T3 Trust return.
Our office can help you file the Trust return (T3). For the December 2023 year-end, the T3 is due by April 2, 2024. For this year only, the CRA will be compassionate and waive the filing penalties (which can reach $2,500 or more) if no intent to avoid filing can be shown.
The T3 requires the Name, Address, SIN (or business #}, and Position (Settlor, Trustee, Beneficiary) for each person. They even have a space for unspecified beneficiaries, like all future grandchildren, as an example. Quite invasive.
Although the deadline is April 2, 2024, we will take advantage of the confusion in the CRA as to what is required and who is required to file. We will be able to help you file these returns.
IF YOU BELIEVE YOU MAY NEED TO FILE (real estate with joint names, tax slips with children and parents name on them, or any other “trust agreement”, contact us ASAP – Office@Henrycpa.ca
Information to provide to us includes:
1) The name, address, and SIN of each Settlor, Trustee, and Beneficiary (see above for descriptions).
2) A list of possible assets that should be included in the trust.
a. If two ITF accounts exist, they may be considered two trusts. If the value of an trust is less than $50,000, it is exempt from filing.
3) The date (estimated) when the trust began (eg. when both names in are in an agreement or on banking/investment documents).
4) The income sharing allocation, if there are multiple Beneficiaries. If it is a real estate sale, does one party qualify for the principal residence exemption?
Please be patient with us, the CRA is still trying to figure out the requirements, and continually making clarifications and refinements. Our position is that it is better safe then sorry, and we can help draft the informal agreement to protect you, the taxpayer.
IF YOU FEEL YOU ARE REQUIRED TO REPORT – PLEASE PROVIDE THE FACTS VIA EMAIL TO: Office@HenryCPA.ca We are not able to deal with this over the phone as one staff member will be focused on this while we all work to get personal and corporate tax returns filed on time.
Thanks, Henry Salomons, CPA-CA
