• Wed. Apr 24th, 2024

What new bare trust tax filing rules mean for Canadians

As it stands, the filing deadline for 2022 UHT returns—which has been extended multiple times—is April 30, 2024. For 2023 UHT returns, these are also due on the same date but may end up being exempt from filing for 2023 and future years. This is because the fall economic statement from the federal government proposed changes to exempt certain Canadian trusts, including bare trusts, from having to file. The draft legislation has not yet been passed into law. But it’s likely that most bare trusts may be exempt from filing UHT returns for 2023 and in the future.


Ask MoneySense

I have been on my children’s bank account for many years. These accounts are totally run by them. The accounts all have under $50,000. Do I need to file?

—Bipin

Accounts with less than $50,000 and different beneficiaries

Each account would be considered a separate bare trust, Bipin, as the beneficiaries are different. If the fair market value during the year of each is below $50,000, you should be exempt from filing.


Ask MoneySense

What if you have three different joint bank accounts with a parent that total $50,000? I.e. $25,000 in one, $15,000 in the second, and $10,000 in the third. Would that constitute one trust of $50,000 or three separate trusts under the $50,000 threshold?

—Amy

Several joint bank accounts with less than $50,000 each

There is a $50,000 T3 trust tax filing exemption threshold that applies for bare trusts. According to the CRA, a bare trust is exempt from filing a T3 return if it is:

“a trust that hold assets with a total fair market value that does not exceed $50,000 throughout the year, if the only assets held by the trust throughout the year are one or more of:

(i) money (note that money does not include collectible gold or silver coins, or gold or silver bars),

(ii) a debt obligation described in paragraph (a) of the definition “fully exempt interest” in subsection 212(3),

(iii) a share, debt obligation, or right listed on a designated stock exchange,

(iv) a share of the capital stock of a mutual fund corporation,

(v) a unit of a mutual fund trust,

(vi) an interest in a related segregated fund (within the meaning assigned by paragraph 138.1(1)(a) of the Income Tax Act, and

(vii) an interest, as a beneficiary under a trust, that is listed on a designated stock exchange.”

So, basically, if a bare trust only owns cash, guaranteed investment certificates (GICs), bonds, stocks, mutual funds or exchange-traded funds (ETFs), it may be exempt from a T3 trust tax filing requirements if its assets are less than $50,000 during the entire year. 

A trust can own multiple assets. As a result, it’s probably reasonable to conclude that the accounts would be combined if the trustees and beneficiaries are the same—such as being joint on multiple bank accounts for one of your parents, Amy. And if the accounts exceed $50,000 in total at any point during the year, this could lead to a T3 trust return filing requirement. The CRA has not specifically confirmed this.


Ask MoneySense

Since any income will be reported directly by the beneficiary, I don’t understand the purpose of filing nil T3s. Can someone explain?

—Sherry

What is the purpose of the new bare trust filing obligations?

You are correct, Sherry, that the income for a bare trust is reported by the beneficiary who beneficially owns the asset generating the income. This differs from a formal trust where the trust itself can report the income and pay tax on it (typically at the top tax rate) unless some or all of the income is allocated to the beneficiaries by the trustees.

Why is the government requiring bare trusts to file T3 returns now? 

The 2018 federal budget first introduced the new bare trust filing requirements. The Department of Finance released the following statement to Investment Executive: “Better information on who owns which legal entities and arrangements in Canada—known as ‘beneficial ownership information’—will help authorities to effectively counter aggressive tax avoidance, tax evasion, money laundering and other criminal activities perpetrated through the misuse of corporate vehicles.”  

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