New Bare Trust Reporting Requirements(Click on highligted text to see reference material)Bare trusts are a type of trust where the trustee has no discretion over the trust property and must follow
New Rules for Bare Trusts
Dated: November 24 2023
New Bare Trust Reporting Requirements
(Click on highligted text to see reference material)
Bare trusts are a type of trust where the trustee has no discretion over the trust property and must follow the instructions of the beneficiary.
A bare trust may be unknowingly created however, if you have co-signed on your child’s mortgage because they do not qualify for the mortgage on their own. Another common example is if you have added your child to the title of your primary residence in order to reduce probate fees or other estate planning purposes while you still retain control of the property.
In Canada, bare trusts are generally disregarded for income tax purposes, meaning that the legal title of a property can be transferred to the trustee without triggering a taxable event when the beneficiary retains beneficial ownership of the property 1. However, under new legislation for trust reporting in Canada, bare trust arrangements are now subject to the filing requirements of Schedule 15 to be attached to all T3 Trust Income Tax and Information returns.
There are penalties involved for failure to comply that may be significant 2. The new reporting regime will require most Canadian resident express trusts and bare trusts to file a T3, Trust Income Tax and Information Return, commencing in their first taxation ending after December 30, 2022 3. Penalties start at $100 and increase by $25 per day to a maximum of $2,500.
It is important to note that the proposed amendments deal only with reporting obligations and will not alter the income tax treatment of any bare trust 3. While bare trusts themselves do not have their own tax liability, any income or capital gains generated by the trust’s assets are attributed to the beneficiary for tax purposes 4. It is crucial to consult with a tax professional to understand the specific tax implications associated with bare trusts and your unique arrangement 4.
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