Bare Trust Reporting
Last year’s tax season was challenging, with the government introducing a new requirement for bare trusts to file trust tax returns for the first time. Fortunately, at the last minute, the CRA announced that bare trusts would not need to file for 2023. This change came after recognizing the unintended impact on Canadians, particularly those with joint bank accounts or where parents were added to property titles to help their children secure mortgages.
Looking ahead to 2024, there’s good news. Recently released draft legislation confirms that bare trusts (that are otherwise not considered to be a “trust”) will also be exempt from filing tax returns in 2024. However, starting in 2025, bare trusts will need to file, with some exceptions, including:
- Arrangements where individuals jointly own property for their own use and benefit, such as joint bank accounts with family members.
- Situations where related individuals hold real property, such as when a parent is on title to help a child obtain a mortgage, and the property qualifies as a principal residence.
- Cases where real property is held by one spouse for the benefit of the other, where it serves as their principal residence.
- Partnerships (excluding limited partners) holding property for the partnership’s use or benefit.
- Instances where property is held under a court order.
- Arrangements where Canadian resource property is held for the benefit of publicly listed companies or their subsidiaries.
- Non-profits holding funds received from government bodies for the benefit of other non-profits.
New rules, effective for trusts with a December 31, 2025, taxation year-end, specify that a trust is deemed to include any arrangement where:
- One or more persons (the legal owners) hold property for the use or benefit of one or more persons or partnerships, and
- The legal owner can reasonably be considered to act as an agent for the persons or partnerships benefiting from the property.
Under these rules:
- Each legal owner in such an arrangement is deemed to be a trustee of the trust, and
- Each person or partnership that benefits from the property is deemed to be a beneficiary of the trust.
These exemptions provide some relief, ensuring that many common arrangements won’t trigger the filing requirement.
Beneficial Ownership Information
In 2023, all trusts were required to file a tax return and disclose detailed information about settlors, beneficiaries, and trustees through Schedule 15. However, an exemption existed for “Listed Trusts.” A Listed Trust was one that held assets with a total fair market value below $50,000 throughout the year, provided the assets were restricted to certain types, such as:
- Money,
- Certain government debt obligations,
- Listed shares, debt obligations, or rights,
- Mutual fund shares or units,
- Interests in related segregated funds,
- Beneficiary interests in listed trusts.
Listed Trusts only had to file a trust return if income from the trust property is subject to tax. However, it was exempt from filing Schedule 15.
The good news is that starting in 2024, for trusts with a December 31 year-end, Listed Trusts will include any trust where the total fair market value of its assets remains below $50,000 throughout the year, regardless of the types of assets it holds.
Additionally, a trust will qualify as a Listed Trust if:
- Each trustee and beneficiary is an individual,
- Each beneficiary is related to each trustee, and
- The total fair market value of the trust’s assets does not exceed $250,000 throughout the year, provided those assets are limited to money, GICs, certain debt obligations, listed securities, mutual fund units or shares, personal-use property, or rights to income from such assets.
- If these Listed Trusts have no tax payable, they are not required to file a tax return. If they do, they won’t need to file Schedule 15.
This means a Listed Trust with no tax does not need to file a trust return. If a Listed Trust does have to pay tax, it is still relieved from filing Schedule 15.
These changes simplify the filing requirements for smaller and family trusts, providing more flexibility. Note that, at the time of writing, these changes are still in draft.
