Take care with taxes — you may be a ‘trustee’ after all

Opinion

Hey there, time traveller!
This article was published 23/03/2024 (533 days ago), so information in it may no longer be current.

OK, spring is officially here (at least on the calendar), so it’s time to get serious about income tax preparation. Pay attention, as new rules may affect you in ways you never imagined.

Please consult your tax professional if any of these items might apply to you.

Complying with these changes — though foreshadowed for more than two years — will be challenging. CRA has acknowledged that fact, saying last week that they will not impose the new onerous penalties on innocent taxpayers (while reminding us that they could), unless a taxpayer’s inability to understand these Byzantine new requirements is considered “egregious.”

Don’t stop reading simply because you aren’t a trustee or beneficiary of a formal trust. Starting with the filings for 2023 — due April 2! — you may very well be one of those taxpayers who now must file a T3 return, to your complete surprise.

Penalties for late filing are $25 per day to a maximum of $2,500, and conviction of failure to file can mean fines of up to $25,000 and up to 12 months in prison.

Informal trust arrangements (where someone looks after property for another person) and “bare trusts” are now potentially required to file T3 and Schedule 15 disclosure returns.

Bare trusts exist where the “trustee” holds legal title to the property but has zero discretion or responsibility other than to transfer title on demand of the beneficiary. These may be formal or informal.

It is possible that the following guideline might help, but we don’t really know, as CRA has not yet answered questions from numerous professional groups.

This is the example of an adult child looking after an elderly parent. If a bank or investment was opened in was added to the title of the account (with all funds coming from the parent), one of two things should have happened.

Either:

1. The parent transferred 50 per cent of the assets to the child (beneficially as well as legally), in which case they would have been each claiming 50 per cent of the income on their respective tax returns. In this case, no trust exists. It is true joint ownership.

Or,

2. The parent only transferred legal ownership and not beneficial ownership. The parent retained all rights and continued to claim all investment income. In this case, CRA may consider this a bare trust arrangement, and the new reporting rules apply.

Remember this is not legal or tax advice, just an attempt to aid understanding.

There are 26 exemptions to the new requirements, (called by CRA “listed trusts”) but several of these have exemptions to the exemptions, so may still be caught.

For example, a “trust” does not need to file a T3 if:

– Total property does not exceed $50,000 at any time during the year;

– All property is in “money” or publicly traded investments.

However, if that same “trust” earns more than $500 in income or more than $100 is paid to any one beneficiary (in this case, the elderly parent), then filing is required. Also, a trust must file if it has tax payable.

Note that a gold or silver coin or other such property is not considered “money,” so any trust holding such an item would need to file.

My recommendation? Get professional advice, and do it soon.

Now I have to run off and complete my T3 and Schedule 15, and get them filed on time.

Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice. Please consult legal, tax, insurance and investment experts for advice on your unique situation.

David Christianson, BA, CFP, R.F.P., TEP, CIM is recipient of the FP Canada Fellow (FCFP) Distinction. He is a senior wealth adviser and portfolio manager with Christianson Wealth Advisors at National Bank Financial Wealth Management, and author of the book Managing the Bull: a No-Nonsense Guide to Personal Finance.