Temporary Exemption Announcement

If you are involved in a bare trust arrangement, such as co-signing a property purchase with your child or partnering with someone in a business venture, you may be relieved to hear that the Canada Revenue Agency (CRA) just announced that you will be granted you a temporary exemption from the new reporting rules that were supposed to take effect for the 2023 tax year. This means you can avoid the hassle and cost of filing a detailed T3 Trust Income Tax and Information Return by April 2, 2024, for the 2023 tax year.

New Trust Reporting Rules

The Canadian government previously introduced new rules for how trusts, including bare trusts, need to report their information starting with tax years ending after December 30, 2023. Under these new rules, nearly all trusts, including bare trusts, are required to file a yearly tax form (T3 Trust Income Tax and Information Return) and give detailed info about who benefits from the trust.

While the new rules aimed to increase transparency, prevent tax evasion and abuse of trusts, they also introduced a complex reporting process, particularly for bare trusts, which are often used for simple and legitimate purposes.

Bare Trust Arrangements

A bare trust is a trust where the trustee has no power or discretion over the trust property and simply holds it for the benefit of the beneficiary. For example, parents may co-sign a mortgage with their child and hold the title of the property in trust for the child. Or, two individuals may enter into a joint venture agreement and hold the assets of the venture in trust for each other.

Looking Ahead

Recognizing the challenges faced by bare trusts, the CRA has decided to exempt them from the new reporting rules for the 2023 tax year only. This is a welcome development that gives bare trust holders some breathing room and time to seek professional advice and plan ahead. However, it is important to note that this exemption is temporary and may not apply to future tax years.

The CRA has also indicated that it may revise the new reporting rules in light of feedback and consultations. Therefore, bare trust holders should stay informed and prepared for any changes that may affect their compliance obligations in the future.