Tax Tip Thursday

Bare Trusts and Trust Returns

Something new this week — Trust Return requirements!

Before you click away, don’t! This might apply to you; the requirements have changed drastically and it now applies to way more people than it did before!

New Rules

There are brand new rules about the definition of a trust and the requirements to file a return beginning with the 2023 tax year. The fines for NOT filing a return can be as much as $2500 per person, per return!

Here are some basic examples, but please read through the document.

One example is named or express trusts that did not have any income. Perhaps the family cottage was formally placed in a trust with a trust agreement but has not filed a tax return because there was no income and no assets were sold. That trust must now file a trust return for the 2023 tax year.

The biggest change is the requirement of a bare trust to file a trust return. Hundreds of thousands of Canadians will have a bare trust and not even realize that they are obligated to file a trust return. (with significant penalties for not filing).

A trust can have a settlor (person who set up the trust – often a lawyer), a controlling person (not listed as beneficiary or trustee), trustee and beneficiary. Often a bare trust only has two main parties, the trustee, and the beneficiary. A trustee is a person who manages the trust and the beneficiary is a person who is the true owner of the trust asset. A bare trust is an arrangement in which the trustee is considered to act as an agent for all the trust beneficiaries. Often the trustee or trustees’ only function is to hold legal title. They do not act without instructions from the beneficiary. Another way of looking at this is if the legal owners are not the same as the beneficiaries, a bare trust exists.

Unsure if You Have One?

Are you unsure if you have a Bare Trust? Here are some common examples of a bare trust arrangement. If you answer “YES” to ANY of the following questions, then a Bare Trust probably exists and you will need to file a Trust return.

  1. Are you listed on a bank account on behalf of someone else i.e. parent/grandparent for a child/grandchild, or adult child on your parents’ bank account, or a corporation? If the bank account balance exceeds $50,000 at any point in 2023 you NEED to file a Trust return. NOTE, you cannot hold multiple bank accounts with each one being under $50,000, when the total of all of them exceeds $50,000. This would require a Trust return as well. Documentation Required: Bank account statement listing full names of legal owners.
  2. Are you listed on an investment account on behalf of someone else THAT PAYS DIVIDENDS? i.e. parent/grandparent for a child/grandchild; or adult child on your parents’ investment account, or a corporation? If the account holds dividend-paying investments, then the $50,000 exemption does NOT apply, and you must file a trust return. Documentation Required: Investment account statement listing full names of legal owners.
  3. Are you listed on the legal title of a real estate property on behalf of someone else for Estate planning purposes only? i.e. parent. Documentation required: Property tax statement/deed/MPAC assessment showing all the legal owners and a statement of who is the beneficial owner(s) of the property.
  4. Are you listed on the legal title of a real estate property on behalf of someone else for financing purposes only? i.e. family member or friend (usually a child). Documentation required: Property tax statement/deed/MPAC assessment showing all the legal owners and a statement of who is the beneficial owner(s) of the property.
  5. Are you listed on the legal title of a real estate property on behalf of a corporation, partnership, joint venture, another Trust? Documentation required: Property tax statement/deed/MPAC assessment showing all the legal owners and a statement of who is the beneficial owner(s) of the property.
  6. Are you listed on the legal title of a real estate property on behalf of your spouse or common-law partner? We will require the property tax statement/deed/MPAC assessment showing all the legal owners and a statement of who is the beneficial owner(s) of the property.
  7. Are you listed as the owner of a vehicle on behalf of someone else i.e. parents, children, grandchildren, corporation?
  8. Are you holding ANY other property on behalf of someone else i.e. parent, child, grandchildren, corporation?
  9. Are you a member of Joint Venture holding property on behalf of the Joint Venture or other joint venturers?
  10. Are you a member of Partnership holding property on behalf of the Partnership or other partners?

If the trust is required to file, then for each beneficiary and trustee (and settlor and controlling person, if applicable) we require:

  • name
  • address
  • date of birth
  • country of residence
  • tax identification number (SIN, or business number etc.)

If there are contingent beneficiaries, then those beneficiaries must also be disclosed. If there are unknown beneficiaries, you must report this fact as well. I.e. unborn children, we also require:

  • a brief description of the purpose of the trust
  • date of the creation of the trust
  • If none of these situations apply to you, GREAT! You are off the hook for a Trust return.
  • If you do have to file a return it is due April 2, so you have to act now!

Do You Have One?

Make sure you book an appointment with us to be sure. It could make a big difference!

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.