The CRA recently announced new filing requirements for trusts that are expected to impact a lot of ordinary Canadians. The biggest implication is the inclusion of bare trusts, which is when an individual holds legal ownership as per legal documents of an asset, but it technically belongs to someone else who bears some of the risks/rewards of that asset. The arrangement is essentially a way of keeping who legally owns something separate from who actually gets to use or benefit from it. So, if you have legal ownership of an account/assets but only act as an agent for the beneficiary, you might be subject to the new trust reporting requirements. 

The implication is that a T3 must be filed as part of tax time, but a lot of people may not be aware they are even subject to these new requirements. We caught up with Hamza Minhas, Principal of Minhas CPA, to share some insights into what situations may trigger the need for a T3 especially as it relates to mortgages or real estate.

The deadline to file your T3 is April 2, 2024. However, under reasonable circumstances, the CRA may extend this deadline as part of their education period to help the public get up to speed on these new requirements in the first year it’s launched.

Disclaimer: This is not legal or accounting advice, every person’s tax situation may be different and you should seek professional advice. The goal of this article is to help people identify if this is something they need to investigate further during tax time.

Question 1: What is a “bare trust”

Although the term “bare trust” is not defined in the Income Tax Act, CRA considers a bare trust for income tax purposes to be a trust arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property.

In simple terms, imagine a bare trust like a safety deposit box. The trustee is the person who holds the keys to the safety deposit box but is only allowed to do what the beneficiary tells them to do with the contents inside. The beneficiary, on the other hand, is the one who ultimately benefits from whatever is kept inside the box. Just like with a bare trust, there’s a separation between legal ownership (the trustee) and beneficial ownership (the beneficiary), with the beneficiary having the ultimate say in how the asset is managed. These arrangements are used for several reasons including but not limited to; creditor proofing, estate planning or financing business logistics. 

Question 2: What are some of the most common arrangements that would trigger the need to file a T3?

• Parents are on title for 1% to assist with mortgaging the property when purchased, this constitutes a bare trust.
• An adult child, of the parent, is added to a joint bank account or joint investment to simplify the administration of the estate on death.
• A person is registered on title of a property, but not beneficially owning it. This usually happens when someone hands over title to their beneficiaries as part of estate planning but retains all legal rights to the property until their passing.
• A company (ex. corporation, joint venture, etc.)  that holds legal title to an asset, but the benefits derived from that asset stem to someone other than the company.

Question 3: Are there any general exemptions or would it be specific to each individual?

• The trust holds assets of a combined maximum fair value below $50,000 throughout the year. Note that the $50,000 applies to the entire asset, not just your respective ownership. For example, if you own 1% of a $500,000 property, the fair value is still $500,000, not just $5,000 (1% x $500,000).
• Trusts that have been in existence for less than 3 months. In the context of a property, that means if your mortgage closed after October 2023 it wouldn’t be in existence for at least 3 months and is exempt.

Question 4: How much work is involved in filing a T3? For someone filing their own taxes, how complicated is that document?

The T3 is not a simple tax document. Beyond registering the right amounts, clearly identifying who the beneficiaries are is critical. It is highly recommended that you seek professional advice.

Question 5: If someone has questions, who should they get advice from?

Either a lawyer or an accountant is a great place to start a discussion on whether your situation constitutes a bare trust arrangement and warrants a filing, drafting of an agreement or if no action is needed. Generally, the accountant will assist with the filing of the T3 return; and the lawyer will draft a trust agreement if there is not one in place already.

Our guest expert Hamza, Principal of Minhas CPA is available by email if you want to get in touch regarding your taxes.