Confusion surrounds the CRA’s changing position with respect to trust reporting requirements for T3 returns filed for tax years ending after December 30, 2023.

The CRA initially announced that for the first time bare trusts would be subject to the new rules which would require the filing of a return disclosing information as to the trust’s beneficial ownership.

Although the term bare trust is not defined in the Income Tax Act, for income tax purposes the term refers to “a trust arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust's property. A trustee can reasonably be considered to act as agent for a beneficiary when the trustee has no significant powers or responsibilities, the trustee can take no action without instructions from that beneficiary and the trustee’s only function is to hold legal title to the property.”

The vagueness of this broad definition is problematic in the context of the CRA’s reporting requirements in that it can include any number of arrangements, from a jointly held account, to real property ownership and development projects, to client funds held in a law firm’s trust account, all of which were previously exempt from trust filing and disclosure.

With the announcement that the exemption for bare trusts would no longer apply, taxpayers and the professionals that assist them in relation to tax related advice, planning and compliance were justifiably concerned, especially given the lack of guidance provided by the CRA in relation to what arrangements would or would not be caught by the new rules.

Finally, on March 28, the CRA announced that it will not require bare trusts to file a T3 Return, including Schedule 15 (Beneficial Ownership Information of a Trust), for the 2023 tax year, unless the CRA makes a direct request for these filings. In addition, it announced that more information will be released in future to provide clarification on how the new rules will apply to bare trusts moving forward.

This reversal in policy has been welcomed by all in light of the penalties that exist for failure to comply. Stay tuned for further updates from the CRA on this important and developing area of law.

This article is intended for information purposes only and should not be taken as the provision of legal advice. Grace C. Cleveland is a lawyer with the law firm of Cleveland Doan LLP and can be reached at (604)536-5002 or grace@clevelanddoan.com.