Bare Trust Filing Rules Relaxed but Only for 2024

Evelyn Jacks

The August 12 draft legislation released by Finance Canada brought welcome changes to the trust filing requirements for 2024 for many routine family planning matters, including  title holdings on principal residences  for an elderly parent or for the purposes of obtaining a mortgage for an adult child.  However, new rules for 2025 have narrowed the scope but not entirely eliminated the need to file T3 returns and Schedule 15 Beneficial Ownership Information of a Trust.   

The Backdrop.  Enhanced reporting and filing rules were first announced in the 2018 federal budget and expected to come into force for taxation years ending after December 30, 2023.  Once released the requirements to file and disclose were much broader than first announced, capturing Canadian-resident bare trusts.  These have been used as primarily as principal-agent agreements under which the beneficial owner has complete control over the assets in question as well as the trustee’s actions, who is put in place primarily to perform administrative duties the beneficiary could not accomplish on their own. 

Notably, there are generally no taxable events in these cases, which is why filing trust returns was previously largely ignored.  Specifically, a taxable event is triggered,  however, when the beneficial ownership changes.

Still, Finance Canada wanted to pierce the veil of tax evasion and avoidance through the use of trusts by introducing the broader filing requirements.  After a false start, there was a last minute pardon for filing the 2023 T3 return in the case of bare trusts.  Now, the August 12, 2024 draft legislation extends that pardon for all bare trusts in 2024 but requires T3 filing in 2025 under certain circumstances.

The new rules introduce the following exemptions:

Trusts with Assets Values under $50,000. Exempted from the filing rules are trusts that hold specific assets where the Fair Market Value (FMV) is under $50,000 throughout the tax year. 

Trusts with Related Parties.  Also exempted are trusts in which each trustee is an individual and each beneficiary is an individual who is also related to each trustee.  In this case the $50,000 exemption may be exceeded but can’t be more than $250,000. 

Property that can be held by these trusts can include money, GICs, certain debt obligations featuring fully exempt interest as per subsection 212(3) of the ITA, debt obligations issues by a corporation, mutual fund trust or limited partnership listed on a designated stock exchange in Canada, corporations listed on a designated stock exchange outside Canada or debt obligations issued by an authorized foreign bank, payable at a branch in Canada, shares, debt obligations or rights listed on a designated stock exchange, shares of the capital stock of a mutual fund corporation, units of a mutual fund trust or interests in a related segregated fund trust, personal use property of the trust.  These trusts may also have the right to receive dividends or mutual fund or other distributions.

Trusts held by a lawyer are also exempted as long as they don’t exceed $250,000 and consist only of cash.  These trusts must be require under professional conduct rules or the laws of Canada that stipulate the holding of funds for activities regulated under those rules as long as the trust is not maintained as a separate trust for a particular client.  Or the only assets held are money with a value no greater than $250,000.   If over this amount, filing and reporting rules must be followed. 

Trusts that hold money to comply with federal/provincial laws.   Trusts that are holding money in trust as  required for a specific purpose to comply with federal/provincial law will be exempt. 

Deemed Trusts.  The legislation which defines an “express trust” which must file a T3 return has been expanded.  An express trust includes any arrangement under which one or more persons, referred to as “legal owners” have ownership of a property that is held for the use of or benefit of one or more persons or partnerships.  The legal owner in these instances is reasonably considered to act as an agent for the beneficial owners.

Each person who is such a legal owner is deemed to be a trustee of the trust and each beneficial owner is deemed to be a beneficiary of the trust. 

There is a lengthy list of filing exceptions which includes ownership arrangements that facilitate estate planning by adding a titleholder on the title of home owned and used by an elderly parent, was used by spouse or common-law partner during the year, or would have been the principal residence if the principal residence exemption would have been designated for it.  These arrangements can also facilitate home ownership by younger adults who couldn’t otherwise get a mortgage.

Bottom Line.  The draft legislation provides filing relief but is fraught with compliance requirements if specific exceptions cannot be met.  Advisors can help their clients interpret these rules as they plan family and wealth management moves in 2024/2025.