The Canada Revenue Agency (CRA) has recently made changes to how Bare Trusts are managed, reported and taxed in Canada. These changes can seem complex, but it’s important for Canadian Taxpayers to understand their implications, especially if they’re involved in property transactions or estate planning. Here, we break down these changes in a way that’s easy to understand, complete with examples that are relevant to the average Canadian.
What is a Bare Trust?
First, let’s define what a Bare Trust is. In simple terms, a Bare Trust is an arrangement where one person (the Trustee) holds legal title to a property or asset, but it is entirely for the benefit of another person (the Beneficiary). The Trustee has no discretion and must follow the instructions of the beneficiary.
Key Changes in the CRA Policy
The recent changes by the CRA focus on increased transparency and reporting requirements for Bare Trusts. These changes mean that Bare Trust arrangements now need to be reported annually to the CRA. This is completed with an annual filing of a T3 Trust return.
What’s Required?
Information requirements to report and file a T3 Trust return may be different than requirements for other Inter-Vivos Trusts. The recent changes by the CRA focus on increased transparency and reporting requirements for Bare Trusts. At a minimum, the following information is required:
- A Bare Trust requires a Trust Account Number with CRA
- Disclosure of complete information of the Trustee(s) (legal owners of the asset)
- Disclosure of complete information of the Beneficiaries (beneficial ownership of the asset)
- The Bare Trust agreement and/or other documentation evidencing the establishment and terms of the Trust. (deed for real estate; portfolio investment statements)
- If written documentation for the Trust does not exist, a “Written Summary” outlining the nature of the Trust and full information, including the date the Trust was created.
Navigating the Changes
It’s essential to consult with a Tax Specialist or a lawyer who specializes in trusts to understand how these changes specifically impact on your financial affairs. Whether you’re investing in property, planning your estate, or managing business assets, the new CRA rules on Bare Trusts can have significant implications.
Remember, staying informed and seeking professional advice is key to navigating these changes successfully.