Bare Trusts: Property, Yes; Bank Accounts, No
Some late-breaking good news from CRA Canada Revenue Agency. Reporting on most Bare Trusts is no longer required.
On Thursday March 28, mid-afternoon, an announcement came from CRA:
NEW – Bare trusts are exempt from trust reporting requirements for 2023
To support ongoing efforts to ensure the effectiveness and integrity of Canada’s tax system, the Government of Canada introduced new reporting requirements for trusts.
In recognition that the new reporting requirements for bare trusts have had an unintended impact on Canadians, the Canada Revenue Agency (CRA) will not require bare trusts to file a T3 Income Tax and Information Return (T3 return), including Schedule 15 (Beneficial Ownership Information of a Trust), for the 2023 tax year, unless the CRA makes a direct request for these filings.
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.
CRA Caused Stress!
For about eight months we have been trying to figure out how to communicate to our thousands of clients about the new Trust return rules and to find out if they need to file one. Since the beginning of the tax season, we have been asking every single client if they are part of a Bare Trust arrangement, and if so, advising them they have a tax return to file. We had planned on filing them after June 15, after the current tax season. CRA had waived the requirement to file by the regular deadline of March 31.
So now we can change how we ask clients about a Bare Trust and now they do not need to file a tax return if they are joint with others on bank accounts.
However, there are still some Bare Trusts that need to file another tax return.
Bare Trusts – Property
There are still some Bare Trusts that need to report on the Underused Housing Tax UHT Return.
This filing requirement is for the year ended December 31 2022 (yes over a year ago). And the deadline to file this information return is April 30 2024.
What is a Bare Trust that may need to file the UHT return?
You may be a trustee if you are a legal owner of a home, but you are not the beneficial owner or not the only beneficial owner.
Millions of Canadians do not realize they are “affected owners” and must file the UHT return by April 30 2024 or face a MINIMUM penalty of $1,000 per individual. There will likely be no tax payable by a Canadian, but the return must be filed to claim the exemption.
Are You an Affected Owner?
You may be an affected owner if:
- You were added to the title of someone’s home for financing purposes only and are not a “beneficial owner” – i.e., you wouldn’t get part of the proceeds if the home was sold. You are considered a “bare trustee” (trustee of a trust) and must file the UHT return.
- You were added to the title of someone’s home for estate planning purposes only and are not a “beneficial owner” – again, you are a bare trustee and must file the UHT return.
- Your home is in your name only; your spouse’s name is not on the title. You are the legal owner, but the two of you are the beneficial owners.
- You have “gifted” a home or a cottage to your children; you are still on the title, but you no longer use it, and they pay for all the operating costs and upkeep. This is a Bare Trust: you are the legal owner, but you are no longer the beneficial owner if you intend them to have the property.
- You are holding property on behalf of beneficiaries of an estate. You are the legal owners, but not the beneficial owners.
- You are the joint owner of a home, and you and your spouse/partner operate a business on/from the property – you are considered to own the property in your capacity as a partner of a partnership. Most farmers in Canada may have to file the return because of housing units on their farms.
- Any other situation where the legal owner(s) is not the same as the beneficial owner may be considered a Bare Trust and the UHT may be required.
Yes, this was meant as and advertised as a tax on non-residents, but Canadians must file to claim their exemption if they are affected owners.
Why the UHT?
The new Underused Housing Tax came in effect January 1, 2022, and is mostly applicable for those who own residential property in Canada and are NOT Canadian Citizens or are NOT permanent residents.
In a nutshell, the UHT is a one-percent tax on the value of non-resident, non-Canadian owned residential real estate that is considered to be vacant or underused.
The tax generally applies to foreign national owners of housing in Canada. However, in some situations, this tax also applies to some Canadian owners such as certain partners, trustees, and corporations (including non-profits). Generally, they may not have to pay the tax, but they may have to file a return and claim an exemption.
In Manitoba, there is likely not much vacant or underused residential properties, compared to other larger cities like Vancouver and Toronto, so likely no taxes to be paid, but you may need to file!
The filing due date was originally April 30, 2023, but since this is the first year, CRA has waived the penalty and interest if filed by October 31, 2023. And then on October 31, 2023, CRA changed the filing deadline to April 30, 2024.
And then CRA realized the unintended consequences, so changed the rules again and said these Bare Trusts do not need to file for the year end December 31 2023, but they did not change the requirement to file for the year ended December 31 2022.
And even if you are an affected owner but exempt from the tax, you need to file by the deadline to avoid the penalty of not filing!
The penalty can be $1,000 if you are an affected owner and even if you do not need to pay the tax! So, if you are not sure, check the CRA site for the UHT to find out if you need to file even if there is no tax to be paid.
Anni Markmann is a Personal Income Tax Professional and Certified Financial
Planner; living, working, and volunteering in our community. Contact Ste
Anne Tax Service at 204.422.6631 (phone or text!) or 36 Dawson Road in
Ste Anne (near Co-op) or info@sataxes.ca