Bare Trusts Exempt from New Filing Requirements for 2024: What This Means for Canadian Families

Tax in the News: Key Developments in Trust Reporting

In a significant update for families managing bare trusts, the Canada Revenue Agency (CRA) has clarified that bare trusts will be exempt from the new trust filing requirements set to take effect for tax years ending on or after December 31, 2023. This exemption, announced in July 2024, has been welcomed by tax professionals and trustees alike, easing concerns about increased compliance burdens.

Background on the New Trust Reporting Requirements

The new trust reporting requirements, introduced by the CRA as part of broader efforts to enhance transparency and combat tax evasion, will require most trusts to file a T3 return annually, regardless of whether they have income to report. However, the CRA’s recent announcement confirms that bare trusts, which hold assets on behalf of beneficiaries but do not have a separate tax identity, are not subject to these new rules.

According to the CRA, “Bare trusts are exempt from the new trust reporting requirements for tax years ending on or after December 31, 2023,” as noted in their official announcement. This clarification provides much-needed relief for trustees and beneficiaries who were concerned about the potential administrative and financial impact of the new rules.  Furthermore, “The government is clarifying bare trust reporting rules to significantly reduce the number of Canadians with bare trusts who would have to file, and ease the related administrative burden when reporting requirements begin for the 2025 tax year,” said Shanna Taller, a spokesperson for the Department of Finance, in an email to Advisor.ca.

What Are Bare Trusts?

Bare trusts, often referred to as simple trusts, are arrangements where a trustee holds legal title to property on behalf of a beneficiary, who retains full control over the assets. The trustee’s role is purely administrative, with no discretion over how the assets are managed. This structure is commonly used in family-owned enterprises to simplify the management and transfer of assets.

Given their straightforward nature, bare trusts have been treated differently under Canadian tax law. The CRA’s decision to exempt them from the new filing requirements acknowledges this unique role. As the CRA’s guidance highlights, “Bare trusts that do not meet the criteria for a specified or deemed resident trust are not required to file a T3 return under the new rules.”

Implications for Canadian Families

The exemption of bare trusts from these filing requirements is particularly important for families with family-owned enterprises, where bare trusts are often used as part of broader estate and tax planning strategies. Without this exemption, these families would have faced significant new compliance challenges.

“This is a very positive development for trustees of bare trusts,” said a spokesperson from the CRA. “The exemption allows them to continue managing these trusts without the additional administrative burden that comes with the new filing requirements.”

However, the exemption does not mean that bare trusts can be ignored in tax planning. Proper record-keeping remains essential, even though a T3 return is not required. Trustees should continue to document all transactions and decisions related to the trust, as this information may be necessary in the event of an audit or inquiry by the CRA.

Next Steps for Trustees and Beneficiaries

For those managing bare trusts, it is crucial to stay informed about their specific obligations under Canadian tax law. Here are a few steps to consider:

1. Review Trust Structures: Ensure that your trust qualifies as a bare trust under the CRA’s guidelines. This will help you avoid unnecessary filings and ensure compliance with Canadian tax laws.
2. Maintain Accurate Records: Even though bare trusts are exempt from filing a T3 return, maintaining detailed records of trust activities is still necessary. This includes documenting all transactions, beneficiary instructions, and any other relevant information.
3. Consult with a Tax Professional: The evolving landscape of trust taxation requires careful navigation. Consulting with a tax expert can help ensure that your trust arrangements are optimized for compliance and tax efficiency.

Conclusion

The CRA’s decision to exempt bare trusts from the new filing requirements is a welcome relief for many Canadian families. However, trustees and beneficiaries should not become complacent. Proper management and documentation remain critical to maintaining the integrity of these trusts.

As tax laws continue to evolve, staying informed and seeking professional advice is essential. At Shajani CPA, our motto is ‘Tell us your ambitions, and we will guide you there.’ We are here to help you navigate these changes and ensure that your trusts are managed effectively.

For more information on how these changes might impact your family’s tax strategy, don’t hesitate to reach out. We’re here to help you achieve your goals with confidence.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2024 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning service.

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