The recent CRA announcement regarding new filing requirements for trusts could have significant implications for many Canadians, particularly concerning bare trusts. Bare trusts involve legal ownership held by one individual for the benefit of another, potentially triggering the need for T3 filings at tax time. However, a lot of people may not be aware they are even subject to these new requirements.
A bare trust 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 a way to keep who legally owns something separate from who gets to use or benefit from it. 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.
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.
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.
Filing a T3 entails more complexity than standard tax documents, requiring careful identification of beneficiaries and often necessitating professional advice. It’s advised to seek legal or accounting professionals who can provide guidance on trust arrangements and assist with T3 filings.
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