(From the October 2024 Edition of eFORUM)

By Jamie Golombek and Debbie Pearl-Weinberg

Canadian trusts have historically been required to file a T3 trust income tax and information return (a “T3”) if they had tax payable, or if they had a capital gain or disposed of capital property. Enhanced trust reporting rules now require all trusts with a taxation year ending on December 31, 2023 or later to file a T3 return, unless an exemption applies. The information that must be reported has also expanded for many trusts, and specific rules now apply for “bare trusts.”

Exemptions

Most non-taxable trusts, such as Registered Retirement Savings Plans, Registered Retirement Income Funds,
Tax-Free Savings Accounts, First Home Savings Accounts, Registered Education Savings Plans, and Registered Disability Savings Plans, are exempt from these rules.

For personal trusts, the new rules also do not apply for 2024 and subsequent years to:

• Trusts that have been in existence for less than three months
• Trusts if the fair market value of the property in the trust is $50,000 or less
• Trusts where all trustees and beneficiaries are individuals and are related to each other, if the fair market value of the property in the trust is $250,000 or less, as long as the only property in the trust is money, guaranteed investment certificates, mutual fund trust units, exchange-traded funds, listed shares or debt, or certain government debt

As in the past, these exempt trusts will still have to file a T3 return if they have tax payable, a capital gain, or disposed of capital property in the year. They are not, however, required to provide the additional information that non-exempt trusts must provide on the T3, such as detailed information about the trust’s beneficiaries.

Bare trusts

An arrangement under which the legal owner of property holds the property for the benefit of others (the “beneficial owner”), and the legal owner can reasonably be considered to act as agent for the beneficial owner, is now captured by the new T3 reporting rules. The Canada Revenue Agency’s position is that a trustee can reasonably be considered to act as agent for a beneficiary when the trustee has no significant powers or responsibilities, the trustee can take no action without instructions from that beneficiary, and the trustee’s only function is to hold legal title to the property. These are commonly referred to as “bare trusts.”

Bare trusts are not required to file a T3 return for the 2023 and 2024 taxation years. For the 2025 and subsequent tax years, bare trusts will be required to file, unless they are specifically excluded from the requirements.

Excluded bare trusts

One type of bare trust that is specifically excluded from the filing requirements is real estate held by related legal owners where one of the legal owners could designate the property as their principal residence. This may be the case if a parent goes on title along with their child to assist the child in obtaining mortgage financing. In addition, where all legal owners of the property are also beneficial owners, and no beneficiary is not a legal owner, no T3 return will be required. This may arise where a joint account is held by family members, as long as they all are beneficial owners of the trust property.

Other bare trusts that don’t fit into these specific bare trust exclusions may still fall under the general exemptions above. For example, if an account opened by a parent “in trust for” a minor child could be considered a bare trust, and the value of that account is under $250,000, that trust likely won’t need to file a T3 return. Similarly, even in situations where the account holders of a joint account are not all beneficial owners of the account, these joint accounts could be exempt if their value is less than $250,000.

Jamie Golombek, FCPA, FCA, CPA (IL), CFP, CLU, TEP, is managing director, tax and estate planning, with CIBC Private Wealth
in Toronto. He can be reached at jamie.golombek@cibc.com. Debbie Pearl-Weinberg, LL.B., is executive director, tax and estate planning, with CIBC Private Wealth in Toronto. She can be reached at debbie.pearl-weinberg@cibc.com.