The new Trust Reporting rules are now in effect for the year ended December 31, 2023 and apply to all trusts regardless of whether they have taxable income or have been formally created or not. These new rules may apply to you as you may have created a trust without realizing it.
While many trusts are formally documented through agreements, substantially more are created informally when someone owns, signs or handles something on behalf of someone else (an individual or a company). These informal trusts are typically referred to as Bare Trusts. Until now, bare trusts did not require any reporting to the CRA however, as of December 31, 2023, bare trusts are also required to file a Trust Income Tax return, regardless of whether any tax is owed.
There are so many situations that create a bare trust such as:
- Cosigning someone’s mortgage and/or being on title. Parents often do this for children.
- When you (or a company you manage) own legal title to someone else’s property. This is common where assets are transferred to a related party, but the provincial registry (land titles) is not updated. This is often the case where an individual holds title to a property but a company earns the rental income and pays the expenses.
- When property is jointly owned or owned on behalf of someone else for estate planning purposes. In some provinces bare trusts are used to avoid land transfer tax or allow for properties to not have to pass through probate.
- Holding a bank or investment account ‘in trust for’ someone else. Grandparents often do this for grandchildren.
- Being a member of a partnership or joint venture that holds assets on behalf of all the members.
- A property manager controls bank accounts for real estate owners or condominium corporations.
It is important for you to consider whether or not any of the above or other similar situations might apply to you or anyone in your family.
If you have a bare or any other trust, the biggest changes that will impact you are:
1) You previously didn’t have to file a trust return for your trust because it didn’t have income or capital distributions. Now you must file to avoid penalties. The penalties for failure to file and report the information is the greater of $2,500 or 5% of the fair value of the property held by the trust.
2) You must complete a new Schedule 15 of the trust return that requires the reporting of the name, date of birth, SIN, address and country of residence for each of the Settlors, Trustees, Beneficiaries and “Controlling Person.” This information may be very hard to get, so it’s critical to collect it now to make sure you can meet the April 2, 2024 filing deadline.
Given that these are new filing requirements and the information that is required to be included in the trust return is significant, it is important for you to identify whether or not you may have a trust that requires filing and then start pulling together the information required to complete Schedule 15.
In the coming days, all KBH clients who we have already identified as having a trust will receive a letter with the above information along with a form to complete so that we can begin the process of filng the trust return. If you believe you have a trust, please do not wait, contact us immediately to discuss your situation so that we can help determine whether or not you have a filing requirement and help you though the next steps.