We don’t usually associate the Wild West with the Canadian tax system. However, the evolution of the rules for trust tax filings has been chaotic and unruly. Vague legislation that was deferred multiple times, sweeping changes announced at the very last minute, and much confusion all around might feel a little like the set of a spaghetti Western. The latest proposed legislation announced in August 2024 continues along the same theme, containing elements that are Good, Bad, and Ugly.
The Good
No bare trust filings are required for 2024
Under previous legislation, anything that could remotely be considered a bare trust (a situation where the legal ownership of an asset differs from the beneficial ownership) was required to file a T3 return for 2023 – until CRA announced a temporary exemption just two business days before the filing deadline.
Under the August 12, 2024, proposals, some bare trusts will still need to file but starting in 2025. One year hiatus for bare trusts – no T3 required for 2024.
More bare trusts should be exempt from filing in 2025 and beyond
Someone at Finance finally realized that it was more than a little ridiculous to make every formal and informal bare trust file a T3 when there is no tax to pay. The proposed legislation widens the exemptions such that fewer bare trusts will be required to file in the future. For example:
- Parents on title of a child’s home to assist in financing
- Principal residences with one spouse on title when the family home is jointly owned and occupied by both spouses
- Partnership property where one partner is on title, but the rest of the partners also beneficially own the property, and the partnership is required to file a T5013
- The legal owner holds the property because of a court order
- Funds received from the Crown held exclusively by a tax-exempt organization for the benefit of other tax-exempt organizations
All of these and others were caught under the old legislation and are proposed to be exempt under the new version. Note that there are specific conditions to be met to qualify for each exemption, and the legislation is currently in draft form and subject to change.
Expanded definition of listed trusts
If your trust falls into the definition of a listed trust, you don’t automatically need to file. Filing is only required if the trust meets certain criteria, and attaching schedule 15 is not required for listed trusts. The proposed amendments add several new categories for listed trusts, including:
- Trusts that hold assets with a total market value of less than $50,000 throughout the year. Under the previous legislation, you had to be under $50,000 and could only hold certain types of assets. The new version removes the restriction on types of assets – being under $50,000 is sufficient.
- Trusts required under rules of professional conduct, including lawyers’ trust accounts held for specific clients, where the trust holds $250,000 or less throughout the year in money (no other types of assets are allowed under this exemption)
- Trusts where:
- Each trustee and beneficiary are individuals (not corporations)
- Each beneficiary is related to each trustee
- The total market value of the assets does not exceed $250,000 throughout the year, and
- The trust only holds specific types of assets including money, GICs, and certain publicly traded funds/securities
This expanded definition of listed trusts should reduce the compliance burden for some smaller trusts.
The Bad
Many trusts still need to file for 2024 even with no income
Family trusts and many other trust types will still need to file for 2024, regardless of the trust’s income level. The proposed legislation is not eliminating this requirement.
Schedule 15 is not going to disappear
With few exceptions, T3 returns for 2023 were required to include schedule 15, which lists everyone, and everything associated with the trust. The full names, addresses, dates of birth, and Social Insurance Numbers or Business Numbers for each settlor, beneficiary, trustee, and controlling person were required to be listed. This doesn’t sound like a big deal until you need to track down Aunt Agnes who is a contingent beneficiary of the trust if a dozen people ahead of her pass away. For whatever reason, you might not want to tell Aunt Agnes that she’s a contingent beneficiary. And Aunt Agnes might not want to give you her Social Insurance Number because the likelihood of any benefit to her is slim. This requirement is not being repealed under the proposed legislation.
The Ugly
The legislation has not passed yet and is therefore subject to change. Once the final version has been released, every trust will need to be re-evaluated to figure out which filing category it fits into.
- Is the situation in question a bare trust?
- If it’s a bare trust, does it fit into any of the filing exemptions or does a T3 need to be filed for 2025?
- If the trust was a listed trust in 2023, it is probably still a listed trust in 2024 unless circumstances changed. Did circumstances change?
- If the trust was not a listed trust in 2023, is it a listed trust in 2024 under the new legislation?
- If it’s a listed trust, does it meet any of the criteria that trigger a filing requirement?
In addition, if the trust is not a listed trust, the information on schedule 15 will need to be reviewed to ensure it’s up to date. Determining the filing status of a potential trust is time consuming, and keeping schedule 15 up to date can get ugly.
Just like a showdown in the Wild West, the latest proposed trust legislation brings a mix of The Good, the Bad, and the Ugly. While some changes offer needed relief, there is much left to be desired for reducing the compliance burden for ordinary Canadians.
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