The CRA introduced some confusing new rules for trust reporting, and although these new rules are in place to curb higher net worth individuals, the verbiage suggests that some arrangements (such as a joint bank account with an elderly parent) may fall into this "bare trust" category, which would require some additional reporting this tax season and going forward.
You may want to read on if you think this may have an affect on you and your tax situation, and may prove worthwhile in saving on unforeseen penalties from CRA for failing to report.
Common examples of Bare Trust agreements.
While there are many potential situations that could be considered a bare trust agreement, the following is a list of common examples that could impact unsuspecting taxpayers:
Additions of an adult child on a bank account or non-registered investment account to provide assistance to aging parents or family members.
Parents on legal title of real estate (with or without child) for financial purposes only.
"In Trust for" bank accounts (ie. bank accounts opened by a parent or grandparent for minor children).
One spouse is on title of a house or asset although the other spouse is a partial beneficial owner.
A corporation is on title of an individual's real estate, vehicle or other asset or vice-versa.
There are limited exceptions to the new T3 reporting requirements which may provide relief depending on the situation. Some of the trust arrangements that are excluded from the new T3 reporting requirements include (but are not limited to) the following:
New trusts that have been in existence for less than 3 months;
Trusts that only own certain assets with a fair market value that does not exceed $50,000 throughout the year.
The process of filling out the T3 begins with downloading of the 2023 T3 Trust Guide, the T3 Trust Income Tax and Information Return, and the T3 Schedule 15, where your tax preparer discloses beneficial ownership of a trust. The files are in PDF format and can be downloaded as either a printable document or one you can fill out on your computer.
The first thing you’re asked for on the T3 Return is a trust account number, which you likely won’t have because, until this year, this would never have been considered beneficial ownership of trust assets.
There are a few ways to get a trust account number – fill out and mail a T3APP Application for Trust Account Number or use the CRA’s My Account portal. The form available on My Account to obtain a trust number is easy to fill out. You’ll need to provide a name for the Trust (you can use “Mom Bank Account” or something relevant like this).
The top of the T3 is basic contact information including address, phone number and such for the trustee of the trust, which means the person making decisions. You must also add the fiscal period for the return – Jan. 1 to Dec. 31 of 2023 if this is the case.
Next, under “Type of trust,” choose “Code 307, Bare Trust.” In the box headlined “Information about the return,” indicate that this is the first year you’re filing. There’s a reference in this section to a trust document, which often doesn’t exist for informal bare trusts like the one you may be reporting. You can click the “sent” box to indicate that no further trust documentation is coming.
The next step is to answer 14 yes-or-no questions that speak to the complexity of some trusts. Example: Does the trust hold shares in a private corporation? I imagine most would answer no to all 14 questions for a simple bare trust arrangement like the ones described above.
Next, you would calculate and disclose the trust’s total income. You would leave this part of the T3 form blank if there is none, or if the income would be otherwise reported (on say a T5, for example)..
And that’s it. There’s really not much more to filling out the T3 Return. Nowhere does the form ask for information about what assets constitute the bare trust you would be reporting.
One final task is to complete the T3 Schedule 15 form that must accompany the T3 annually to report on the trust’s beneficiary, trustee and settlor. The beneficiary is the person for whose benefit the trust was created – in this case "Mom". You would be the trustee, or the administrator of the accounts that make up the bare trust. "Mom" is also the settlor - the person who contributed assets to the trust.
Another question with Schedule 15 is how to fill out Part B – “Identification of reportable entities.” It is advised to fill out Part B three times – to disclose the name, address, birthdate and social insurance number for the beneficiary, trustee and settlor. To do this, you can just print three copies of Schedule 15 and use only Part B on two of them.
These instructions should be pretty straightforward for any tax preparer.
I hope this helps!