Canada to suspend bare trust reporting rule until 2025, while government considers new exemptions

Thursday, 22 August 2024
Canada's federal government has issued draft proposals to 'significantly reduce' the number of bare trusts affected by the new trust reporting rules introduced in the 2023 tax year.
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The new reporting regime under new subsection 150(1.3) of the Income Tax Act was enacted in 2022 to force many more trusts to file an annual T3 return. It caught many foreign trusts that hold taxable Canadian property, have a Canadian resident as beneficiary, or hold property transferred or loaned by a Canadian resident. Bare trusts under which the trustee acts as agent for the beneficiaries were also caught.

However, the rules caused such consternation that the Canada Revenue Agency (CRA) had to agree to waive penalties on trustees of bare trusts who failed to meet the first filing deadline (2 April 2024). Later, it entirely dropped the bare trust filing requirement for the 2023 financial year, acknowledging that the new reporting rules 'have had an unintended impact on Canadians'. The filing requirement remained in place for express or other trusts that are resident or deemed resident in Canada and would otherwise be required to make T3 filings, including the Schedule 15 (Beneficial Ownership Information of a Trust).

On 12 August, the government announced a further package of draft legislation, including new proposals to modify the trust reporting rules and reduce their administrative burden. These proposals also repeal the existing rules for years ending after 30 December 2024 and will apply only to tax years ending after 30 December 2025, so the 2025 taxation year will be the first year for which most affected trusts will have to report under the new rules.

Among those now exempted from reporting are:

  • Partnerships holding property through a general partner. 
  • Trusts holding real estate that is a principal residence for related individuals or the spouse or common-law spouse of the legal owner.
  • Trusts holding assets of any kind worth less than CAD50,000.
  • Some family trusts with individual trustees and beneficiaries, where assets are less than CAD250,000.
  • Trusts required to hold cash of up to CAD250,000 under the law or the professional conduct rules, or where the trust is established to comply with laws requiring a person to act as the trustee of a trust for specified purposes.
  • Public companies in the oil and gas and mining sectors that use certain nominee or bare trust arrangements to hold 'Canadian resource property'.

The August 2024 legislative package also includes measures relating to the capital gains inclusion rate; the Global Minimum Tax Act; graduated rate estates and certain corporate anti-avoidance measures.

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