Welcome relief from CRA on bare trust filings, disclosure

Hey there, time traveller!
This article was published 21/09/2024 (551 days ago), so information in it may no longer be current.

It’s safe to say it hasn’t been a great couple of years for the Department of Finance or the Canada Revenue Agency. That meant a lot of wasted time for the tax advisory and compliance community.

I will mention a couple of fiascoes in a minute, but in the meantime let’s celebrate the fact the CRA appears to have been listening to the community and is rolling back some unrealistic filing and disclosure requirements, including the 2023 proposed rules on what qualifies as an “avoidance transaction” and triggered further disclosure.

Much of this refers to corporate and partnership transactions on which taxpayers are receiving professional advice. So, instead, we will start with an issue that concerned millions of Canadians in the past year, whether using a professional accountant or not.

This refers to the 2023 requirement by the CRA (acting on the government’s instructions) to require a T3 tax return and disclosure of all stakeholders to be filed whenever a financial arrangement could be considered to be a ”bare trust.”

In prior years, there was no requirement to file a return for a bare trust.

The problem? If you have a joint account with an elderly parent, for example, where the money is their money and they report all the investment income on their tax return, this could be considered a “bare trust,” with you acting as the trustee.

This could also catch people who had added their child or children to the title of their home to ease future estate settlement.

On March 28, (yes, Virginia, two days before the filing deadline for trusts), CRA backed off and said bare trusts would be exempt from trust reporting requirements for the 2023 tax year.

Last month, draft legislation (for public comment) was introduced eliminating the requirement for bare trusts to file a T3 for 2024 (unless specifically required by the CRA) and proposing that certain types of these trusts will be permanently exempt from reporting obligations.

This is welcome relief for many taxpayers and accountants, who spent hours (and evenings and weekends) gathering the information for the aborted requirement last year, only to be told, at literally the last minute, “never mind!”

Starting in 2025, some of the following bare trusts would be exempt from filing, where throughout the year:

— The legal owners are all related individuals and the property is real estate that could be designated the principal residence of at least one of these owners;

— All beneficiaries are the owners of the trust property and all legal owners are beneficiaries of the bare trust;

— A non-profit organization holding government funds for the use of other non-profits;

— The legal owner has a principal residence in joint name with the spouse;

— Certain partnership arrangements, where at least one partner is required to file an information return for the partnership;

— The legal owner holds the property pursuant to a court order.

This is progress. This draft legislation and other recent guidance from CRA have also helped to clarify the implementation of the change to the capital gains inclusion rate, raised the threshold for what is considered an “avoidance transaction” and trigger for additional disclosure and extended confidentiality and liability protection to a wider range of tax advisers.

Hopefully, this recent trend to a more realistic and practical tax compliance regime will continue.

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.