CRA exempts bare trusts from reporting requirements for 2023

The Canada Revenue Agency (CRA) has exempted bare trusts from having to file a trust return or Schedule 15 for 2023 unless the CRA makes a direct request, the agency said Thursday in a release.

The announcement comes just days before the April 2 deadline for the filing of trust returns, effective for trusts with year-ends on or after Dec. 31, 2023.

The CRA announced the relief “in recognition that the new reporting requirements for bare trusts have had an unintended impact on Canadians,” the agency said.

The CRA said it would work with the Department of Finance over the coming months to further clarify its guidance on this filing requirement.

“The CRA will communicate with Canadians as further information becomes available,” the release said.

This marks the third time that the CRA announced relief for bare trusts.

On March 12, the CRA announced it would not impose gross negligence penalties on taxpayers who fail to file a return for a bare trust on time for 2023 except in “the most egregious cases.”

In December, the CRA said it wouldn’t apply penalties — $25 per day late, with a minimum of $100 to a maximum of $2,500 — for filing a trust return and a Schedule 15 for bare trusts after the deadline.

The federal government first proposed stricter trust reporting rules in the 2018 federal budget to help combat “aggressive tax avoidance, tax evasion, money laundering and other criminal activities” and as part of Canada’s international commitment to the transparency of beneficial ownership.

The expanded trust reporting rules were originally meant to be effective for the 2021 tax year, but the effective date was delayed twice, pending the passage of enabling legislation late in 2022. The new legislation is effective for trusts with year-ends on Dec. 31, 2023, and after.

Under previous legislation, generally only trusts with taxes payable for the year or those that disposed of capital property needed to file an annual trust income tax return (T3). Under the expanded reporting requirements, express trusts (as opposed to those created by law) as well as bare trusts had to file a T3: Trust Income Tax and Information Return, and a Schedule 15: Beneficial Ownership Information of a Trust, with the CRA on an annual basis.

The new rules require trusts to identify all beneficiaries, trustees, settlors and/or protectors of the trust, including their addresses, dates of birth and taxpayer identification numbers, such as a social insurance numbers.

Certain trusts are excluded from the expanded rules. These include graduated rate estates; qualified disability trusts; mutual fund trusts and registered plans; trusts in existence for less than three months; and trusts with less than $50,000 in asset value — if those assets consist of only cash and securities traded on a designated exchange (and other certain assets).

In addition to the existing penalty for failing to file a T3 return on time — $25 a day, with a minimum penalty of $100 to a maximum of $2,500 — the new reporting rules introduce an additional penalty for deliberately not filing or for gross negligence: $2,500 or 5% of the property’s value, whichever is greater.

The T3 and Schedule 15 filing deadline for most trusts is March 30, 2024. Since that date falls on a Saturday, the CRA considers a T3 return filed on time if the CRA receives it, or it is postmarked, on or before April 2 (the next business day).