The Canada Revenue Agency (CRA) has made a last-minute decision to rescind the new rule that trustees of Canadian bare trusts must file a trust return for the 2023 tax year.
The announcement, made on the day before the filing deadline, is 'in recognition that the new reporting requirements for bare trusts have had an unintended impact on Canadians', said the CRA. It follows on the heels of the concession in March 2024 that trustees who filed late would not be penalised except in cases of serious misconduct.
The new trust reporting rules were enacted in 2023, applying for taxation years ending on or after 31 December 2023. They require many more trusts to file an annual T3 return, including the Schedule 15 (Beneficial Ownership Information of a Trust) form, many for the first time. As well as bare trusts, under which the trustee acts as agent for the beneficiaries, the new rules also catch many foreign trusts that hold taxable Canadian property, have a Canadian resident as beneficiary or hold property transferred or loaned by a Canadian resident. Trusts with a 31 December 2023 tax- year-end were required to file their T3 by 2 April 2024.
The announcement applies only to bare trust arrangements and to the filing requirement imposed under new subsection 150(1.3) of the federal Income Tax Act. The filing requirement remains in place for express or other trusts that are resident or deemed resident in Canada and would otherwise be required to make T3 filings, including new Schedule 15, and to pay any tax by 2 April 2024. Whether an arrangement is a trust or a bare trust will be a question of law and fact and should be determined on a case-by-case basis, says law firm Aird Berlis.
'Taxpayers may wish to seek legal counsel if they are unsure whether their arrangement is a trust, and what type of trust they have', noted the CRA. It has reserved the right to make a direct request for a T3 return from a bare trust this year if it so chooses.
The CRA says it will work with the Department of Finance over the coming months to further clarify its guidance on the bare trust filing requirement. The current situation is that bare trusts will still be required to file a trust return and Schedule 15 for the 2024 and future tax years.
'Given the uncertainty and obligations surrounding the filing of T3 returns for bare trusts, including in regards to information required to be disclosed on Schedule 15, this will certainly be welcome news for those bare trusts for which no filing has yet been made', said law firm Thorsteinssons.
However, law firm Weir Foulds has called the timing of the announcement 'very unfortunate'. The firm said that the decision is 'extremely unfair to accountants (who are already overworked at this time of year) and their clients who sought to comply with the rules'.
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