RA updates guidance on the enhanced trust reporting rules

The Canada Revenue Agency (CRA) has updated its Frequently Asked Questions (FAQ) document regarding enhanced reporting rules for trusts and bare trusts.  The updated FAQ provides additional clarity on compliance requirements for trusts and reiterates that bare trusts are not required to file a T3 and Schedule 15 for 2023 and 2024 unless requested to do so. With bare trusts being exempted for 2024, little additional guidance was provided to help taxpayers identify bare trusts.  Hopefully more guidance will be provided as we get closer to 2026, which is when 2025 bare trust returns are expected to be filed.

The updated FAQ is based solely on current law and does not discuss any of the proposed amendments contained in the draft legislation published in August 2024 by the Department of Finance. Since these proposed amendments were subject to consultation and not tabled in a Notice of Ways and Means Motion, CRA will not be administering them for 2024. 

Section 1 - Trust reporting rules for T3 returns filed for taxation years ending on or after December 31, 2023

New question 1.1 provides a general overview of the legal principles governing trusts in Canada:

• Separation of legal and beneficial ownership,
• How a trust is established,
• Trust vs. agency and bare trusts, and
• Civil law jurisdiction (Quebec).

The first legal principle provides some clarification to help identify bare trusts.  “In a bare trust, the separation of legal and beneficial ownership means that although trust property is registered under the trustee’s name, the beneficial owner has the rights or attributes of ownership in the property: (a) possession, (b) use, (c) risk and (d) control.”  As originally commented by CRA, the trustee of a bare trust “acts as an agent” for the beneficiaries when dealing with trust property.

New question 1.2 reiterates CRA’s inability to provide legal advice regarding the determination of a trust.   The CRA emphasizes that determining whether a particular arrangement constitutes a trust is a question of fact and law, requiring an analysis of the specific circumstances of each situation.  CRA also states it is the responsibility of involved parties to establish the true nature of their legal relationships.

New question 1.5 states that schedule 15 must be filed each year if required, but it provides further guidance on how to complete Part B of the schedule. 

New question 1.6 provides some guidance in situations where the identity of one or more beneficiaries is not known or ascertainable with reasonable effort. New question 1.7 addresses the same identity issue for persons that are not beneficiaries, but provides no guidance on how to properly complete schedule 15.   

New question 1.9 addresses the failure to file a T3 return or provide specified information, and new question 1.10 addresses errors or omissions in Schedule 15 information.  Neither question provides any guidance on how to deal with situations where the specified information is not available.  Both questions simply refer to penalties for failure to file a T3 return or to include specified information.

Section 2 - Affected Trusts

Question 2.1 restates that all trusts must file (resident and non-resident) a T3 return when any of the eight listed conditions apply (i.e. has tax payable or taxable capital gain). If none of the eight conditions apply, a trust must still file a T3 return if it is an express trust, other than a listed trust. A "Listed Trust" is a trust that meets one of the paragraphs in section 150(1.2) of the Income Tax Act (ITA).  This updated question also restates CRA’s policy for bare trusts stating that bare trusts for the 2023 and 2024 taxation years do not need to file a T3 return, unless the CRA makes a direct request.   

New question 2.5 clarifies paragraph 150(1.2)(a) “had been in existence for less than three months at the end of the year”.   CRA states, the following trusts are considered to have been in existence for less than three months at the end of the taxation year:

• Trusts that ceased to exist during the particular taxation year, at a date which is less than three months after the trust was created
• Trusts that were created less than three months before the end of the particular taxation year

This clarification is welcome news, as there had been uncertainty about whether the definition included only trusts created within three months of December 31, 2024.

New question 2.7 provides five examples to help trustees better understand the trust reporting requirements for 2023 and 2024 based on the currently legislated rules. The examples illustrate different scenarios dealing with the listed trust exception in paragraph 150(1.2)(b):

• Toronto Trust – An express trust where the fair market value (FMV) of assets temporarily exceeds $50,000 during the year is not a Listed Trust for that year and must file a T3 and Schedule 15.
• Montreal Trust – An express trust where the FMV of assets remains below $50,000 but invests in a guaranteed investment certificate (GIC) is not a Listed Trust (since a GIC is not an eligible asset) and must file a T3 and Schedule 15.
• Halifax Trust – A Listed Trust that realizes a capital gain and distributes it to a beneficiary is required to file a T3 return but not Schedule 15.
• Vancouver Trust – An express trust that owns shares of a private corporation is not a Listed Trust (since private corporation shares are not eligible assets) and must file a T3 and Schedule 15.
• Winnipeg Trust – An express trust that owns a cottage property is not a Listed Trust (since real property is not an eligible asset) and must file a T3 and Schedule 15.

Section 3 - Bare Trusts

Section 3 of the updated FAQ largely restates much of the guidance found in the original FAQ. As noted previously, the CRA waived the filing requirement for 2023 and 2024 for bare trusts (unless a request is made by the CRA).  The updated FAQ includes two new topics:

The Processing of Voluntary Filings

In Question 3.5, the CRA states that it will accept any T3 return, including Schedule 15, that it receives.  Trusts that have filed a T3 return will receive an assessment even if the CRA had waived the requirement for the return to be filed.

Closing a Trust Account Number

Question 3.6 describes the steps that must be taken to close a trust account number for a bare trust. Where a bare trust has a trust account number and ceased to exist in the 2023 or 2024 taxation years, the following steps may be taken to close the trust account number:

• the trustee of a bare trust may voluntarily file a final T3 return with the wind-up date, 
• the trustee of a bare trust may call the general enquiries line at 1-800-959-8281, or
• the trustee of a bare trust may send a letter to either the Sudbury Tax Centre or the Winnipeg Tax Centre that includes the trust account number, trust name, the act that the trust is wound up, and the wind-up date.

Section 4 - Legal Representatives (Primary trustee)

No change

Section 5 - Account Number 

Deleted

Section 6 - Mandatory disclosure and underused housing rules (now section 5)

The wording in this section is largely unchanged. 

In Question 5.1 (formerly Question 6.1), the CRA states that the mandatory disclosure rules and the enhanced reporting rules for trusts are different.  The original FAQ elaborated by adding that the mandatory disclosure rules are a transaction-based disclosure, while the enhanced reporting rules for trusts require information on the beneficial owners of a trust.

Section 7 More information (now section 6)

Section 6 of the updated FAQ (formerly Section 7) explains how readers can access more information about these changes. The original FAQ mentioned that readers could interact with the CRA through social media, but this statement was omitted from the updated version.