On December 15, 2022, the government passed Bill C-32 bringing into effect new trust reporting rules that apply to trusts with tax years ending December 31, 2023. Included in these new rules are the reporting requirements for Bare Trusts.

What is a Bare Trust?

A bare trust, also known as a simple trust or nominee trust, is a legal arrangement or understanding where a trustee holds a legal title to assets for the benefit of a beneficiary. In a bare trust, the trustee’s role is limited to holding and transferring assets according to the beneficiary’s instructions, without having the authority to manage or make decisions about the assets independently. Essentially, the trustee has a “bare” or passive role and must act solely in the beneficiary’s best interests.

A bare trust is most commonly used in the following situations:

• Maintaining the privacy of the true owner
• Minimizing land transfer taxes or probate fees
• Gifting to a minor child
• Holding legal title on behalf of a joint venture or partnership
• Facilitating multiple transfers of title in a corporate reorganization

Some examples of Bare Trusts are:

• A child is named as a joint bank account holder on a parent’s bank account in order to assist the parent with their personal banking but has no personal benefit.
• Co-signing a child’s mortgage.
• A child is on title of a parent’s home for estate planning reasons but does not live in the home.
• An asset is owned by a person but is recorded and used in their corporation as a business asset.

What is the Penalty for Failing to File a Trust Return?

The filing deadline for bare trusts is 90 days from December 31, for the 2024 tax year this falls on March 30, 2024. There are significant fines for not filing a return or filing a return late. Late filing penalties are $25 per day (minimum $100, maximum $2500), and additional penalties equal to the greater of $2500 or 5% of the maximum value of the property held by the trust during the year, where a failure to file was made knowingly or due to gross negligence.

With the new rule, only reporting requirements change while the tax treatment remains the same. Find more information on the bare trust rule change, including exemptions, click here.

The Canada Revenue Agency (CRA) announced it will temporarily waive the late-filing penalty for the 2023 taxation year for bare trusts (and bare trust only) if they file after March 30, 2024 as they recognize the challenge in identifying bare trusts that previously were never required to file a return. This relief only applies to the 2023 taxation year and only if the failure to file is not done knowingly or due to gross negligence.

Need Guidance on the Bare Trust Reporting Requirements?

The rules are complex, so if you think you may be subject to the new filing rules, please contact DM Tax Accountants in Surrey, BC for comprehensive advice and assistance.