15 Dec Trust Reporting Preparation
Over the past couple of years, we have been getting ready for the additional filing obligations and disclosure requirements for Trusts. As a reminder, all “express trusts” must file a T3 Trust Income Tax and Information Return (“T3 Return”) for the 2023 year even if they are inactive or were previously exempt from filing.
Please refer to our previous article for more information: https://www.clearlinecpa.ca/trust-reporting-requirements/
Bare Trusts
As we discussed in our previous article, a bare trust, which is a form of express trust, is where the legal title of an asset is held by a trustee, but a beneficiary has the beneficial ownership of the property. These are quite common in everyday situations and there can be both documented and undocumented bare trusts. The legal agreements for a bare trust can be called “Bare Trust Agreement”, “Nominee Agreement”, “Declaration of Bare Trust”, or “Agency Agreement”
We want to reiterate some common examples.
Examples of Common Bare Trusts
- As parents age, it is common for them to add their children to the legal title of their real estate and bank/investment accounts as this can reduce the probate fees on their estate. These arrangements have a reporting obligation unless they can meet the exemption thresholds for certain bank/investment accounts.
- Young adult children will sometimes need assistance financing their home purchase which requires a parent to be added to the title of their real estate to obtain financing. In some circumstances, parents are added to title to help protect against relationship breakdowns. These arrangements have a reporting obligation as a bare trust.
- Legal title for real estate owned by companies is often held by a different person than the beneficial owner. This is common for joint ventures, partnerships, and frequently occurs in corporate reorganizations. This arrangement is a bare trust and now has a reporting obligation.
- Legal ownership of a vehicle is held personally, where the beneficial interest is reported in a company or has been capitalized in a company. This is also a bare trust with a reporting obligation.
The Canada Revenue Agency recently published some guidance on the T3 Return filing obligations for bare trusts, including how to name a bare trust when it does not have a formal agreement and how to register for a Trust Account Number. We expect that more guidance will be released in the coming months.
What Should You Expect from Clearline?
Over the next month, we will be sending our engagement proposals to all our clients that have a Family Trust, Alter Ego Trust, or Joint Partner Trust. This engagement proposal is our service contract to prepare the 2023 T3 Return. If you do not receive an engagement proposal and think you should, please contact us.
Once the process has been started for the Family Trust, Alter Ego Trusts, or Joint Partner Trusts, we will start reaching out to clients with Bare Trusts and other types of trusts to discuss their filing obligations. Once we confirm that there is a filing obligation, we will send our engagement proposals for these trusts.
Once that proposal is approved by the Trustee, we will need to gather all the prerequisite information on the trustees, beneficiaries, settlors, and protectors that is now required to be disclosed in the T3 Return. Clearline will send the Trustees a summary of the information that we have on file for these persons. We will need the Trustees to review the information for completeness and gather in any missing information. We expect that this missing information may be significant depending on the number of persons involved. Once the Trustees have this information collected, they can submit the information back to Clearline.
Clearline will then start preparing the T3 Return. Our goal is to have most of these returned filed by mid-March, since the deadline is the end of March.
Action Items
If you think that you have a situation that might be a bare trust, please reach out to your Clearline Advisor to determine whether you have a filing obligation. The penalties for not filing a T3 Return can be significant.
