There is a new tax reporting rule for the year ending December 31, 2023, we want you to be aware of as we think it could impact you or someone you know. The change applies to trust arrangements, most notably “bare trusts”. Many people may not know what a bare trust is, so unknowingly many of you fall into this scenario and as such, are affected by the new rule. We anticipate several Canadians will be required to file a separate T3 Trust Return in addition to their normal T1 Personal Tax Return.
A bare trust is a legal arrangement where a trustee’s only purpose is to hold title to property, acting solely on explicit instructions from beneficiaries. Examples include:
- Elderly parent adding an adult child to the house title and/or bank account to help with ongoing needs and to simplify estate assets.
- Parent co-signing a loan in support of their child’s ability to access a mortgage.
- Parent opening a bank account in trust for their minor child.
Those of you with business dealings should also not overlook any arrangement whereby the beneficial ownership of an asset is uncertain. A good example may be your car is owned by your business corporation.
These personal and business examples are included (but not limited to) as maybe requiring a separate T3 Trust Tax Filing for the 2023 income tax year and subsequent future years. Deadline to file these returns are (90) days after year end. This year, the deadline of March 30, 2024, is extended to April 2, 2024, due to the deadline falling on a weekend.
There are exceptions to the new rules; things like RRSPs, RRIFs, TFSA’s, First Home Savings Accounts, RESPs, And Registered Disability Savings plans are all exempt. Bank and investment accounts with a fair market value less than $50,000 may also be exempt.
NOTE: even if the trust in question does not have any tax payable, capital gains or dispositions of capital property in any given year, you may still be required to file a T3 Trust return.
It is worth noting that there are significant penalties for knowingly or unknowingly failing to file the proper returns. This is why we believe that going forward, some Canadians may choose to change the structure of these informal beneficial ownership assets to avoid these complications.
We understand this new reporting requirement probably generates more questions than answers. This is why we are pleased to invite you to a timely webinar. We will review the new rules and provide you with concrete solutions on how to best structure your family and business affairs to simplify your finances and enhance the estate planning characteristics of your financial assets.
Feel free to click the link below to register for the webinar titled “Wealth Transfer Strategies & The New Trust Reporting Rules” we are hosting on Monday March 11th, 2024, from 2:00pm – 2:30 pm.
Click here to access the webinar registration page.
As always, when in doubt, speak to a certified tax accountant should you have any questions pertaining to your unique situation.
Isaac Musial is Partner & Certified Financial Planner at Compass Wealth Partners, a Durham Region based financial services company located in Oshawa, ON. The foregoing is for general information purposes only and is not intended to provide specific personalized advice including without limitation, financial, legal, accounting or tax advice.