Important Trust Reporting Update: Bare Trusts are Exempt for 2023

CRA announced today that bare trusts are not required to file a T3 Income Tax and Information Return (T3 Return) for the 2023 tax year, unless CRA makes a direct request for the filings.

The CRA has recognized the “unintended impact on Canadians” as a result of the new reporting requirements and will work with the Department of Finance to clarify its guidance about the requirements. As this information becomes available, CRA will communicate it to the public.

Before CRA provided this exemption for bare trusts, penalties for late filings were already going to be waived (except in the case of gross negligence). Instead of penalties, CRA was adopting an education first approach to compliance for this new reporting requirement.

A full exemption for the 2023 tax year is a welcome change. Because bare trusts are not well defined and dependent on the facts of each situation, many charities were uncertain about whether a T3 was required. We trust (pun intended!) that forthcoming information from CRA and Finance will provide the necessary clarity.

What are bare trusts?

As the CRA explains, “bare trust” is not defined in the Income Tax Act. For income tax purposes, a bare trust is

“…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.”

CRA gives an example: “a property developer establishes a bare trust arrangement that will hold registered title to real property, while the developer retains beneficial ownership.”

What are the new trust reporting requirements?

The main changes to trust reporting are that:

• Many more trusts (subject to certain conditions) must file an annual T3 Return
  • Trusts formed as charities are exempt
  • Registered charities’ internally held trusts are exempt
• Trusts required to file a T3 generally need to complete Schedule 15 to report beneficial ownership information
• Bare trusts are subject to the reporting rules but are exempt from 2023 reporting and future reporting will be subject to clarifications from CRA and Finance

These changes stem from bill C-32, Fall Economic Statement Implementation Act, 2022 (Bill C-32. This bill added new subsections to section 150 of the Income Tax Act, requiring more trusts to file T3s. It also expanded the list of information that must be reported in the T3 Return (see the Income Tax Regulations).

Trusts that are formed as registered charities are specifically excluded, and in November, 2023, CRA confirmed that charities do not have to file separate T3s for internally held trusts.

For more, see our blog post Charities Do Not Have to File T3 Returns for Internal Trusts.

When would T3s normally be due?

The filing deadline depends on the trust’s tax year-end. Generally, trusts are required to have a December 31 tax year-end. The T3 must be filed no later than 90 days after the trust’s tax year-end.

For detailed information about the T3, see CRA’s T3 Trust Guide – 2023