Bare Trust Compliance Threat Not Over

Evelyn Jacks

Although, in general, bare trust filings received a CRA reprieve for the April 2, 2024 tax filing deadline, other obligations remain and will carry non-compliance penalties.  Specifically, CRA has stated that the T3 Return and Schedule 15 (Beneficial Ownership Information of a Trust) will not be required for the 2023 tax year unless the CRA makes a direct request for them. 

The CRA and Finance Canada, meanwhile will work to clarify new guidance to provide more direction for the requirements to file in the future.  The potential for filing T3 returns has not been eliminated.  While the government is waiving penalties payable under subsection 162(7) for the 2023 tax filing year for reasons other than gross negligence,  the potential for the gross penalty has not disappeared completely either.

CRA notes it will only apply this penalty in the most  “egregious cases”; and this could occur as a result of a future audit. . . “where all factors and circumstances of the taxpayer’s particular situation are considered together. A gross negligence penalty for failing to file will be subject to oversight and approval by Headquarters, following a mandatory referral,” it states.

The gross negligence penalty is extremely expensive:  the greater of $2,500 and 5% of the highest amount at any time in the year of the fair market value of all the property held by the trust.

Bottom Line:  For these reasons, professional advisors should still be covering the requirements for tax filings any time there is a bare trust arrangement and in particular, defining what a bare trust arrangement is. They should be able to demonstrate they have prepared their clients for the potential of a direct request or an audit, which would invoke gross negligence penalties.  It will also be prudent to consider alternative ways to accomplish planning goals.  

For more details that help you deliver financial peace of mind to clients, join us at the May 22 Virtual CE Summit, and check out the Certificate Course Introduction to Trusts