The Canada Revenue Agency (CRA) will no longer require bare trusts to file a T3 Income Tax and Information Return (T3 return), including Schedule 15 (Beneficial Ownership Information of a Trust), unless they directly request these filings from an individual taxpayer.

This policy change was made to recognize that the new Bare Trust tax reporting requirements, which were only recently introduced for the 2023 tax year, would have had an onerous and unintended impact on many Canadians.

Over the coming months, the CRA will work with the Department of Finance to further clarify its guidance on this filing requirement. The CRA will communicate with Canadians as further information becomes available.

What is a Bare Trust?

A Bare Trustee corporation acts as the title holder to an asset for the benefit of someone else, such as holding the title to investments in a nominee corporation. This arrangement is often used in real estate development and oil and gas and resource exploration, but it is also used by many Canadian families for general estate and probate planning purposes.

Here are some examples of Bare Trusts that, until the recent policy reversal, would have required taxpayers to submit additional annual filings:

• • An individual holds an “in trust” bank or investment account for a child or a parent.
  • A parent corporation holds cash in trust for underlying subsidiaries, such as certain corporate “cash sweep” arrangements.
  • A general partner in a limited partnership arrangement is the title holder to the underlying assets of the partnership. This arrangement is typically used in real estate investments but may also include business operating partnerships.
  • An individual has purchased a property “in trust,” but the actual owner is not clearly identified. This arrangement is commonly used with real estate purchases or certain pooling of private investments where the title holder or purchaser is not the true underlying economic or beneficial owner of the property.
  • An individual is registered on the title of real estate they do not beneficially own, such as having a named interest on a child’s or parent’s home for estate planning purposes.

The above is not an exhaustive list, and legal counsel should be consulted to identify all informal trust arrangements and instances of a Bare Trust that may be subject to new tax reporting policies in the future.

Contact your Portfolio Manager

For now, the Bare Trust annual tax filing requirement is lifted for the 2023 tax year, and we will continue to monitor the situation for our clients. If you have any questions about Bare Trusts and how they might affect your tax, financial, and estate planning, please contact your Cumberland Portfolio Manager.