Bare Trusts – Updated Filing Requirements Announced August 2024

Written by Beth Porter CPA, CA, CFP, Noseworthy Chapman

Over the last few years, Finance Canada has announced several changes to tax filing requirements for Trusts.  One of the more significant changes was the requirement for all bare trusts to file tax returns commencing with the tax year ended December 31, 2023.   The details regarding this requirement were outlined in a December 2023 article by John Grummett of Taylor Leibow LLP.  Before 2023, bare trusts generally did not have a requirement to file tax returns.  Some common examples of bare trusts mentioned in the article were situations where children are put on title to a parent’s property for ease of administering an estate, or where a parent is required to be on title of a child’s property for mortgage financing purposes.

What is a bare trust?

The term “bare trust” is not defined in the Income Tax Act. However, according to the Canada Revenue Agency, a bare trust for income tax purposes “is a trust arrangement under which the trustee can reasonably be considered to act as an agent for all the beneficiaries under the trust with respect to all dealings with the trust property”. A bare trust essentially exists when a trustee holds legal title of the property while taking direction from the beneficiaries.  Whether or not this was intentional on the part of the Government, these requirements could be interpreted to include situations that would include most every Canadian and, in some cases, a person could be a trustee of many separate bare trusts.  While some exceptions were provided, they were very narrow in scope, and did not exempt many common “in trust” situations.

Filing for 2023

As of early 2024, the stated implications for non-filing were very cryptic. Penalties for non-filing would be waived for the 2023 tax year in situations where the filing was made after the due date, however this did not include situations where the failure to file was made knowingly or due to gross negligence.  In mid-March 2024, a mere three weeks before the filing deadline, it was announced that penalties would be waived for the 2023 tax year for situations other than gross negligence and in the last few days of March a further update was made that bare trusts would only be required to file 2023 returns if directly requested by the CRA.

What’s changed?

In mid-August, draft legislation was introduced that expands the list of filing exemptions that will significantly reduce the number of trusts that will be required to file tax returns for the 2024 taxation year.  In this draft, Finance Canada has specifically stated that bare trusts will not have to file returns for tax years ended December 31, 2024 and they have more clearly defined the beneficial ownership arrangements that are subject to the reporting rules in 2025 as a “deemed trust” under the Income Tax Act.

Also included in the draft legislation are filing exemptions for all trusts, including bare trusts, where:

  • All trustees and beneficiaries are individuals, and all beneficiaries are related to each trustee;
  • The fair market value of trust property does not exceed $250,000 throughout the year; and
  • Trust assets consist solely of certain assets including cash, Canadian GICs, Canadian mutual funds, personal-use property, securities traded on a designated stock exchange, as well as other similar items.

The draft legislation also expands the scope of smaller trusts that will be exempt from filing to include all trusts holding assets totaling $50,000 or less in fair market value throughout the year, even where the trust has a corporate trustee or does not meet the related test.

Also excluded from reporting are client-specific trust accounts held by lawyers and other professionals if they only hold cash and do not exceed $250,000 during the year.  Previously all client-specific trust accounts were included in the filing requirements.

Statutory Trusts that are established under a provincial or federal statute and require the trustee to hold property in trust for a specific purpose are also exempt from filing under the draft legislation.  These trusts would include those of bankruptcy trustees or provincial guardians.

Other very common trust arrangements will also be excluded from filing including those where the legal owners listed on a property deed are all individuals who are related to each other and the property is the principal residence of at least one of the listed individuals; and also those where spouses occupy a property jointly however only one spouse is on the legal title.

These recently announced changes are welcome relief for many Canadians and their advisors and will significantly reduce the number of trust returns required to be filed.  If you have any questions regarding your own situation and how these changes may affect you, please reach out to your contact person at your local DFK firm.

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