The Canada Revenue Agency (CRA) is hitting pause on a new “bare trust” reporting requirement with just a few days remaining before the deadline.
New reporting requirements for such trust arrangements were introduced for the 2024 tax season. Anyone with a bare trust was required to file a T3 tax return form naming the trustees, beneficiaries and settlors of each trust by April 2.
But on Thursday — with four days before the deadline to file — the CRA announced that it would be pausing the reporting measures.
“In recognition that the new reporting requirements for bare trusts have had an unintended impact on Canadians, the Canada Revenue Agency will not require bare trusts to file a T3 … for the 2023 tax year, unless the CRA makes a direct request for these filings,” a statement released by the tax agency said.
There is no definition of a bare trust in the Income Tax Act. The CRA defines a bare trust as “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.”
Unlike express trusts, where people seek out a lawyer to create a trust, bare trusts can happen almost accidentally — when a parent cosigns a mortgage for a child and becomes partial owner, or when an aging parent puts their kids down as partial owners of their house in anticipation of an impending death.
In those cases, the bare trust does not earn any money for the trustee to report in a given tax year.
Even though Canadians wouldn’t have been taxed on a trust’s value, failure to report being a member of a bare trust could have resulted in a fine of $2,500, or five per cent of the value of all property in the trust, whichever is higher.
The requirement was meant as a way to crack down on tax avoidance. Corporations and wealthy individuals sometimes hold properties in bare trusts so they can avoid paying property transfer taxes.
The CRA said it would be working to “to further clarify its guidance on this filing requirement” over the coming months.
