New and Expanded Rules for Trust Reporting from CRA
New rules from the CRA, effective in 2023, require that more trusts and estates file tax returns. The rules have been expanded to include cases where a trust acts as an agent for its beneficiaries, commonly known as a bare trust. These changes will catch many individuals and businesses that may not be aware of their trust-like relationships, exposing them to potential penalties and other consequences for non-compliance.
When there is a mismatch between legal and beneficial ownership, there is likely a bare trust arrangement. The following lists some common potential bare trust arrangements:
Individual Reasons
- a parent is on title of a child’s home to assist the child in obtaining a mortgage;
- a parent or grandparent holds an investment or bank account in trust for a child or grandchild;
- one spouse is on title of a house or asset although the other spouse is at least a partial beneficial owner;
Estate Planning Reasons
- a child is on title of a parent’s home for probate or estate planning purposes only;
- a child is on parent’s financial accounts (orother assets) to assist with administration after the parent’s passing;
Business Administration Reasons
- a corporate bank account is opened by the shareholders with the corporation being the beneficial owner of the funds;
- a corporation is on title of an individual’s real estate, vehicle or other asset, and vice-versa;
- assets registered to one corporation but beneficially owned by a related corporation;
- use of a nominee corporation for real estate development purposes;
- a partner of a partnership holding a bank account or asset for the benefit of all the other partners of a partnership; a joint venture arrangement where the operator holds legal title to development property as an agent for the benefit of other participants;
- a cost-sharing arrangement where a person holds a business bank account, or other assets, to facilitate the arrangement while having no, or only partial, beneficial interest in these shared assets;
Industry-specific Issues
- a property management company holding operational bank accounts in trust for their clients, or individuals managing properties for other corporations holding bank accounts for those other corporations; and
- a lawyer’s specific trust account (while a lawyer’s general trust account is largely carved out of the filing requirements, a specific trust account is not)
Although CRA is offering leniency by waiving these penalties for bare trusts solely for the 2023 taxation year, the importance of identifying situations where a T3/TP-646-V Return is now mandatory going forward cannot be overstated.
If you have a bare trust arrangement in an account at Adamson Wealth Group that exceeds $50,000, we will reach out to you directly to discuss further.
CRA has not commented on several of the examples; it is uncertain how they will interpret and enforce the law. Please reach out to your Accountant for more information.
This information has been prepared by Jessica Mann, Wealth Advisor, iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this email comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.
iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
