CRA Extends Relief for Bare Trust Returns as Filing Deadline Looms

Only three weeks before the April 2, 2024 Trust Return filing deadline, the CRA released updated guidance indicated that gross negligence penalties will not apply for 2023 in most cases if taxpayers fail to file on time, except in the “most egregorious cases”. It’s good news that the government has decided to ease the penalty provisions for people who don’t file by April 2 as they try to decipher these new rules. When does a bare trust exist, and when do the rules apply? Here are some examples, based on a question submitted by one of our KBR readers and students, Connie Zhu.

Q. A married couple, both are Canadian Citizen.  The principal residence they live in was purchased before they got married and only one spouse is on the title.   Is this a bare trust? Do they each need file T3 return?

A  No, this is an implied, resulting trust and not an express trust.  Exempt.  See Pecore v Pecore case 2007 SCC 17  Only express, informal and bare trusts have to file - ITA ss 94(3)

Q. If they were to purchase a property for investment, and only one spouse is to be on the title, is this a bare trust? Do they each need file T3 return if so? 

A - No, no trust exists here and if there were a family law entitlement it would be exactly the same as #1 above = implied, resulting trust. Only express, informal and bare trusts have to file - ITA ss 94(3)

Q.  They each have their own non-registered bank account.  In addition, they also have some non-registered joint accounts with the term of right of survivorship.  Is this a bare trust? Do they each need file T3 return if so?  

A - The key is in the behaviour if there is no written agreement. It’s only a bare trust if the joint owner has no beneficial use of the account now.  i.e. if they can both draw on the joint account for life expenses it’s a true joint account.  If only one is “allowed” to use the funds now and the other can’t touch it by mutual agreement, it’s a bare trust and has to file a T3 & Sched. 15.  Bare trusts are not defined in the ITA or anywhere else.  This is an equitable legal principal refined through jurisprudence.

Q - They also have registered bank accounts such as TFSA and RRSP, each one is designated as beneficiary for the other.   Is this a bare trust? Do they each need file T3 return if so?

A - This is not a bare trust and is specifically exempt as a listed trust ITA ss150 (1.2) (a) to (o)  Check out CRA’s Listed trusts (the name for those not required to file) which are the following:

1. a trust that has been in existence for less than three months at the end of the year
2. a trust that only holds certain types of assets with a fair market value that does not exceed $50,000 throughout the taxation year
3. a trust that is required under the relevant rules of professional conduct or the laws of Canada or a province to hold funds for the purposes of the activity that is regulated under those rules or laws, provided it is not maintained as a separate trust for a particular client or clients. This provides an exception for a lawyer's general trust account, but not for specific client accounts
4. a trust that qualifies as a non-profit organization described in paragraph 149(1)(l) of the Act or a registered charity
5. a mutual fund trust 
6. a related segregated fund trust, as defined in paragraph 138.1(1)(a) of the Act
7. a trust, all the units of which are listed on a designated stock exchange
8. a prescribed master trust
9. a graduated rate estate, as defined in subsection 122(3) of the Act
10. a qualified disability trust
11. an employee life and health trust
12. a trust described under paragraph 81(1)(g.3) of the Act
13. a trust under or governed by:
    1. a deferred profit sharing plan
    2. a pooled registered pension plan
    3. a registered disability savings plan
    4. a registered education savings plan
    5. a registered pension plan
    6. a registered retirement income fund
    7. a registered retirement savings plan
    8. a tax-free savings account
    9. an employee profit sharing plan
    10. a registered supplementary unemployment benefit plan
    11. a first home savings account
    12. a cemetery care trust, or a trust governed by an eligible funeral arrangement

Many thanks to Carol Willes, MBA, LLM, TEP, FDFS™ for her assistance in answering these questions.  Carol will be joining us as an instructor at the May 22 CES event – sign up now for early registration offers!