January 1 is an important day in regulatory changes. January 1, 2024 starts the first year in which the new reporting requirements for trusts will be in force. As such, this will be a particularly important next few months for trustees.
Trustees of bare trusts in particular will need to be cognizant of the new reporting obligations to which they are subject. Unlike many other types of trusts, previously, bare trusts did not need to file T3 returns, but that changes this year, with some minor exceptions. A bare trust is a trust that acts as a form of principal-agent relationship, where the trustee has no obligations other than to deal with the trust’s property as instructed by the beneficiaries.
The new reporting requirements apply even where there is no income to report, there was no disposition of capital property, and no taxes would be payable. Among the information that must be included are the names, addresses, dates of birth, jurisdiction of residence, and taxpayer identification numbers for the trust’s trustees, settlors, beneficiaries and controlling persons on an attached Schedule 15 which must also be submitted. The term settlor as contemplated for the purposes of the new reporting requirements is defined in ss. 17(15) of the Income Tax Act, and includes any person or partnership who contributed property (including loans) to the trust. There is an exception for arm’s length transfers or loans made at reasonable rates of interest or for fair market value.
Bare trusts with a year end of December 31, 2023 have until April 2, 2024 in order to report the required information. Failure to comply with the new reporting rules will incur a penalty of the greater of $2,500 or up to 5% of the highest total fair market value of all the property held by the trust in that year. As such, trustees should review the trusts that they administer to identify situations in which they will be required to adhere to the new reporting rules, and ensure that they comply in time for April 2, 2024.
Thank you for reading.
Diana McBey