Navigating the New Tax Rules for Bare Trusts

Starting from December 30, 2023, new tax rules apply to bare trusts. Now, bare trusts must submit a T3 Return every year, which includes Schedule 15 containing details about beneficial ownership.

The Income Tax Act does not specifically define a bare trust. The Canada Revenue Agency (CRA) says: “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.”

It typically occurs when someone holds legal title to an asset, but the beneficial ownership belongs to someone else. It's an informal arrangement and can happen simply by adding someone's name to an account or property ownership.

Some common examples of bare trusts are:

a parent co-signing a mortgage for their child

a parent or grandparent who has an account for a minor child or grandchild

an adult child with joint ownership of their parent’s bank account, investments or real estate for estate planning purposes

Who has to file a trust tax return?

The trustees of the trust are responsible for filing a tax return for it. Trustees are individuals who hold assets on behalf of others. So, if a parent co-signs a mortgage, the parent is the one who needs to file. If there's an account for a minor child or grandchild, it's the parent or grandparent who owns the account who needs to file.

Similarly, if an adult child holds assets jointly with their elderly parent, it's the child who needs to file.

How to prepare Trust

Name of the trust

The CRA requires trusts to have a name for identification purposes. For example, if "Ms. Andrews" is the beneficiary of a bare trust, a suitable name could be "Ms. Andrews Trust." If there are multiple beneficiaries, the CRA recommends listing their names alphabetically by last name, followed by the word "Trust" at the end.

Type of trust

Choose code 307 "Inter Vivos Bare Trust"

To obtain a trust number, which is essential for filing a trust tax return, the CRA recommends using the "Trust Account Registration" service online. This service is available through their website.

My Account: under the "More services" option

My Business Account: under the "More services" option

Represent a Client: under the main menu

Once you complete the online registration process, you will receive the trust account number immediately.

Late filing penalty

If trust returns are filed late, a late filing penalty of $25 per day may apply, up to a maximum of $2,500. Trust returns are due within 90 days of the year-end.

For further information please contact Taxtron Support at 416-491-0333 or visit www.taxtron.ca