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New rules from the Canada Revenue Agency mean many Canadians could be filing a tax return for a trust this year. Here’s what it could mean for you.
What do the new rules say?
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According to the Revenue Agency web site, all trusts, unless specific conditions are met, must file a T3 Trust Income Tax and Information Return. Also, bare trusts may now be required to file a T3 return.
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What is a bare trust?
A bare trust, unlike a formal trust, is an informal arrangement, possibly something as simple as adding a name to an account or deed. A parent co-signing a mortgage for their child, a parent who opens a bank account for a young child, or an adult child with joint ownership of a parent’s bank account are all examples of this.
Or, in the words of the CRA, a bare trust “is a trust arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property.”
Who has to file the T3?
The trustees are the ones who need to file. In the above examples, the parent who co-signed the mortgage or opened an account for a minor child, or the adult child who has joint ownership of a parent’s account must file. However, some trusts with assets under $50,000 may not be required to file.
What is required?
The CRA has a page that walks through what information is needed. Bare trusts may not require as much information as other more formal types of trusts. If this is the first year of filing a trust return, a copy of the trust document may be required.
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How to identify a bare trust
The CRA requires every trust to have a name, usually just a list of the beneficiaries with the word “trust” at the end. It also needs a CRA trust number, similar to a social insurance number in that it lets the CRA identify the taxpayer — in this case the trust rather than an individual. And the easiest way to get a number, the CRA says, is through the “trust account registration” option it added to its “My Account” tax pages this year.
Are there penalties for not filing?
Late filing can result in a penalty of $25 per day, up to a maximum of $2,500. T3 returns are due within 90 days of year-end, so for the 2023 tax year, the return for a bare trust is due April 2. The CRA says it will waive penalties for late filing, but only for the 2023 tax year. That’s good news for anyone suddenly faced with filing this new and unfamiliar form of return.
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