IMPORTANT: NEW AND EXPANDED TRUST REPORTING

It’s about that time of year where the mailbox starts getting filled with tax related documents. Many of us wait until the last minute to file, but here is a reason to start working on your taxes now!

The Government of Canada has introduced new trust reporting rules that require all trusts, unless specifically exempted, to file a tax return. This applies to any trusts with a tax year ending on or after December 31, 2023. Bare trusts and informal trusts are now required to file a tax return even if they’ve never filed in the past.

A bare trust arrangement exists where an individual, corporation, etc. has legal title to an asset but isn’t the beneficial owner of that asset. The trustee has no significant powers or responsibilities and can take no action without instructions from the beneficiary. An informal trust exists where there’s no formal written agreement outlining the terms of the trust arrangement.

HOW DOES THIS IMPACT ME?

You may now have exposure to filing requirements as a result of these changes. There are several examples listed below which outline how you may be impacted. Please review the list carefully.

1. Nominee Corporation – Used in joint ventures and partnerships to hold title to real property and other assets.
2. Joint Bank and Investment Accounts – Adult children named on accounts belonging to elderly parents.
3. “In Trust For” Accounts – Parents who hold funds on behalf of their children until they reach the age of majority.
4. Adult Child on Title to Parent’s Home – An estate planning and probate reduction strategy.
5. Parent on Title to Child’s Home – A requirement to obtain financing.
6. Family Cottage Trusts – A personal use property with shared ownership.

It’s important to note that CRA’s penalties for failing to file a tax return when required attracts a penalty of $25 a day to a maximum of $2,500 as well as further penalties on any unpaid taxes. In addition, gross negligence penalties of false statements or omissions is the greater of $2,500 and 5% of the highest fair market value of the trust property during the year.

CRA has recently indicated that for bare trusts only, the late filing penalty would be waived for the 2023 tax year in situations where the filing is made after April 2, 2024.

Please contact us or your tax professional if you think you may have a bare or informal trust issue to be filed. The filing deadline is April 2, 2024.

Be well, stay connected, and remember, there’s more than one way to wealth!

By Andrew Hawryluk
Wealth Advisor
Assante Financial Management Ltd.

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