Trust Reporting Rules – What You Need to Know

What a year it has been for trust reporting rules. There have been many twists and turns in this ongoing saga.

Before I tell the story, I will start with the final chapter. The latest news is good. Many Canadians can breathe a sigh of relief as the recent news seems to provide permanent relief for many who may have otherwise been required to file a T3 trust income tax and information return.

First – the basics. A bare trust exists when a trustee’s only role is to follow the instructions of the beneficiary. Bare trusts are most often used for real estate ownership, to protect confidentiality and for probate planning.

In my practice I see many examples of bare trusts. Such as when a child is added to a parent’s bank account to avoid probate fees. I also see situations where a parent goes on the title of residential real estate so their child can qualify for a mortgage. These situations could potentially be considered a bare trust arrangement and caught under the rules as they were written earlier this year.

In July 2024, we witnessed significant developments regarding bare trust rules. Initially, the Canada Revenue Agency (CRA) had introduced strict filing mandates for bare trusts in the 2023 tax year. However, after significant pushback, including lobbying from stakeholders, the CRA announced in March 2024 (just days before the deadline) that most bare trusts were exempt from filing T3 returns for that year unless specifically requested.

This sudden shift in policy just before the filing deadline led to confusion and frustration among taxpayers and their representatives. Many had already incurred expenses to comply with the original requirements, including legal and accounting fees. Consequently, the Taxpayers’ Ombudsperson, François Boileau, launched a systemic review in July 2024 to assess whether the CRA had adequately respected taxpayers’ rights.

New legislation introduced in 2024 offered clarity on bare trust exemptions going forward. For example, personal trusts that have existed for less than three months or hold property valued under $50,000 are exempt from filing. There are also exemptions for trusts where the trustees and beneficiaries are closely related individuals, as long as the trust’s assets are below $250,000 and consist of basic financial instruments such as cash or government debt.

While bare trusts are not required to file for 2024, beginning in 2025, some bare trusts may need to file under these revised guidelines. The first major reporting deadline is set for March 31, 2026.

The rules remain extremely complex. Your RGF Financial Advisor can help you assess the effect of these developments on your trust reporting requirements.

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