— Scotia Wealth Management
April 2, 2024
Wealth is a complex topic to navigate, particularly within a family context. Many families are unprepared to discuss money with each other in terms of amounts and future plans, and many others are uncomfortable with it altogether. What’s more daunting is when estate plans and legacies are at stake.
Avoiding these subjects can have serious repercussions down the line. Primarily, they create rifts in communication that often result in confusion and uncertainty. Starting the conversation now, however, can have a profound impact on the success of a wealth transfer and have a positive impact on the financial status and mental health of everyone involved.
So, what causes people to shy away from this kind of discussion? One pervasive reason is the approaches different generations take toward financial literacy.
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— Wealth Management Taxation, Scotia Capital Inc.
March 6, 2024
UPDATED - April 4, 2024 Have you established an in-trust-for (ITF) account for your child or grandchild? Do you own a bank account, non-registered investment account, or certain other assets, such as real property, jointly with your parent, child, or others?
If so, you may be subject to the new trust reporting requirements and required to file a T3 Trust Income Tax and Information Return (T3 Return).
Important update
On March 28, 2024, the CRA published important updated information and guidance on the new trust reporting requirements on its website, New – Bare trusts are exempt from trust reporting requirements for 2023. The CRA notes that in recognition that the new reporting requirements for bare trusts have had an unintended impact on Canadians, the CRA will not require bare trusts to file a T3 Return, including Schedule 15, for the 2023 tax year, unless the CRA makes a direct request for these filings.
The CRA also advises that over the coming months, the CRA will work with the Department of Finance to further clarify its guidance on this filing requirement. The CRA will communicate with Canadians as further information becomes available.
New trust reporting requirements
The income tax rules governing which trusts must file an annual T3 Return have been expanded for trusts with a taxation year ending after December 30, 2023. Under the new trust reporting requirements, all trusts, unless specific conditions are met, must now file a T3 Return with the Canada Revenue Agency (CRA) and report additional beneficial ownership information annually. As a result, many trusts, including bare trusts, that did not previously have to file may now be required to file an annual T3 Return.
What is a bare trust?
A bare trust for income tax purposes includes an arrangement under which a trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property. There is no requirement for a bare trust to be documented or to sign a formal bare trust agreement establishing the parties’ intentions.
The CRA notes that a trustee can reasonably be considered to act as agent for a beneficiary when the trustee has no significant powers or responsibilities, can take no action without instructions from that beneficiary, and their only function is to hold legal title to the property. For the trustee to be considered as the agent for all the beneficiaries of a trust, it would generally be necessary for the trustee to consult and take instructions from each and every beneficiary with respect to all dealings with all of the trust property.
So, if you have legal ownership of an account or assets but only act as agent for a beneficiary and do not have beneficial ownership of the account or assets, you may be a trustee of a bare trust subject to the new trust reporting requirements.
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