Bare Trust Filings: Are T3s Required for 2024?

Evelyn Jacks

Great news!  CRA has a Halloween treat for tax accountants and their financial advisors this year:  it will not require bare trusts to file a T3 return include Schedule 15 for both the 2023 and in the 2024 tax year.  This confirms the position in the draft legislation released over the summertime and previously reported in Knowledge Bureau Report.   Here’s the backdrop:

The Backdrop.  Enhanced trust reporting and filing rules were first announced in the 2018 Federal Budget and were expected to come into force for taxation years ending after December 30, 2023. 

Once released, the requirements to file and disclose information were much broader than first announced, capturing Canadian-resident bare trusts.  These have been used as primarily as principal-agent agreements where the “beneficial owner” has complete control over the assets in question as well as the trustee’s actions.  That trustee, meanwhile is put in place primarily to perform administrative duties the beneficiary cannot 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 by the tax department.  Rather, a taxable event is triggered – together with T3 filing requirements - when the beneficial ownership changes.

Last year, after a false start, and amidst much confusion and consternation, there was a last minute pardon for filing the 2023 T3 returns for bare trusts.  Now, the pardon has been extended unless CRA makes a direct request for the filing. 

This mirrors what’s in the draft legislation which proposed to extend the filing exemption  for all bare trusts in 2024 but will 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.   Ask your tax advisor about the types of property that can be held in these trusts. 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 required 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. 
• 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. 
• Express Trusts.  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. There is a lengthy list of filing exceptions which includes the estate planning opportunities with elderly parents and the home ownership objectives noted above. 

Other trusts.   The new trust reporting requirements still apply to other trusts with taxation years ending after December 30, 2023, unless specific conditions are met. The deadline for filing those return is no later than 90 days after the trust's tax year-end. This is generally December 31. Therefore trusts with a December 31, 2024, must file a T3 by March 31, 2025.

Bottom Line.  Discuss trust filing requirements as part of your year end tax planning routine.  There are still advantages to establishing trusts, but the tax rules continue to shift and draft legislation has still not been passed.  

Additional Educational Resources:  Check out the following Professional Certificate Course from Knowledge Bureau:    Filing T3 Trust Returns.  While this course provides professional training,  this knowledge will help families have better conversations with their accountants, lawyers and financial advisors and thereby make more tax-astute financial decisions. 

Specifically, students will learn how to file simple T3 Returns, optimize taxes payable on income earned by a trust and to better understand tax planning and filing requirements to avoid expensive penalties from the CRA.