If you have a bare trustee or other informal trust arrangement, you might have a new reporting requirement next year.
Bare trusts and other informal trust arrangements are commonplace in ordinary commercial activities, particularly in the real estate sector. Nominee corporations are frequently used to hold legal title of a property on behalf of a group of owners in a joint venture or partnership structure, simplifying transactions.
Bare Trusts and other informal trusts will now be required to file an information return reporting detailed information, whereby these arrangements did not previously have any tax filing or reporting requirements under the Income Tax Act.
Informal trusts are broadly used, including in common arrangements to allow convenient banking where legal title is separated from beneficial ownership. For example, parents setting up “In Trust for” accounts for children.
Previous articles published on November 3, 2020 (New Trust Reporting and Disclosure Requirements) and March 11, 2022 (Delayed Implementation of New Trust Reporting and Disclosure Requirements) detailed these new reporting requirements for Trusts.
The new rules are now proposed to be effective for all Trusts’ tax years ending after December 30, 2023, after a one year extension was recently provided by the government.
Accordingly, T3 Trust returns with extensive information reporting will be required to be filed in countless situations. Failure to file and/or report as required may be liable to significant penalties, including up to 5% of the maximum value of the property held during the taxation year by the trust where a failure to file was made knowingly or due to gross negligence.
Clients that identify any Trust, Bare Trust, or other informal trust arrangements in their organizational structure are encouraged to contact their Shimmerman Penn LLP advisor as soon as possible for further advice and planning with respect to the incoming requirements.
The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity.
Accordingly, the information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers.
While we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.
Again, no one should act upon any information contained herein without seeking appropriate professional advice after a thorough examination of their particular situation.
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