New CRA Trust Reporting Updates

Why should I read this?

The government has introduced new rules that are going to increase the number of people who have to file tax returns for a trust arrangement. This may apply to you, even if you don’t think so – please read below.

The returns may not generate taxes – but there are penalties for failing to file by the April 2, 2024 deadline. These penalties increase rapidly to a maximum of $2,500. If CRA considers that a failure-to-file was deliberate or negligent… then these penalties start at $2,500.

What exactly is this “trust” thing?

In grossly-simplified terms….. A trust is something that exists when one person has legal title to something (it’s in their name), but they are not the beneficial owner (they don’t get to use or enjoy it). Technically a trust is a relationship between people, rather than a legal entity, but that’s not relevant here.

Trusts are used a lot in advanced tax planning (eg. to help distribute the wealth of a successful family business to other family members, on a tax-efficient basis). There are other non-tax uses as well. For example, you may have assets being managed on behalf of somebody who has a mental impairment and cannot manage those assets on their own.

In most cases, those trusts were deliberately set up, and have documents in place. They may already have filed trust tax returns. However, many may not, especially if no money flowed in or out. Now, they all have to file, even if dormant – and there’s expanded paperwork.

OK, it doesn’t apply to me then.

Well… that’s the catch. It might.

Unfortunately, there’s a wide range of situations that create a trust relationship – even if you didn’t know it, and there’s no paperwork for it. Many of them are what’s known as a “bare trust” relationship, where the legal owner (the trustee) has no right at all to enjoy the actual asset.

These bare trusts are being required to file for the first time. This MAY MEAN YOU:

• You are on title of your child’s house (to help them apply for a mortgage) – even if it’s only 1%. Or, vice versa.
• You have a bank account for other family members. Eg. “Grandparent in trust for Grandchild”
• You are joint signatory on a bank account for your ageing parents, although you understand that it’s not your money, and you only have that right for administrative convenience.
• You own a corporation. You have a car in the corporation. However, the car’s in your own name, because the insurance was easier that way.

Some exemptions apply. For example, the “grandparent” account is normally OK if the assets in it are less than $50,000. But, that depends on the asset. Similarly, a joint account is OK if you formally have Power of Attorney. These exemptions are still being clarified.

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Trust me (ahem, sorry), we’d much rather not be dealing with this. But, rules are rules.

These rules are unlikely to lead to new taxes. Your arrangement may also qualify under one of the exemptions. But… you could also be exposed to penalties if you ignore them.

The government has indicated they will be flexible on penalties for bare trusts, this year only. But… they’ve not given full details of what that means. So we’d prefer not to rely on it.

If you think you may apply, please give us a call and we can discuss it. Please call sooner rather than later. If you decide you need to file, some info must be gathered, and some paperwork put in place, before the April 2 deadline.

An editorial note from Jules…

These new rules suffer from the same problem as the rules introduced last year for the UHT (Underused Housing Tax Blog Post). At the basic level, a good idea. Specifically, for the trust rules, it reduces the risk of inappropriate use of these arrangements, and brings us in line with other countries.

But… it’s all in the detail. And unfortunately the detail has been over-engineered. As with the UHT, many people are going to be caught in this, who really aren’t those it’s aimed at…

I hope that the government will do what it’s done with the UHT – after a year of filing, it will realize that these rules are too broadly drawn, and thin out some of them. They’ve already done that with the UHT.

In the meantime… I’m afraid we have to comply with them. But the more this happens, the more it reduces the credibility of our tax system. Like it or not, we rely on our tax system to pay for defence, education, health service, etc…. So damage to that system can’t really be a good thing.

~Jules Hawkins