Canada Revenue Agency announces penalty relief for bare trusts filing late returns

The CRA will waive the basic late filing penalty to ease the transition into new reporting standards

Canada Revenue Agency announces penalty relief for bare trusts filing late returns

The Canada Revenue Agency (CRA) has announced penalty relief for bare trusts filing late returns for the 2023 tax year.

The deadline to submit the forms for the tax year 2023 is set to April 2. However, the CRA said the basic late filing penalty will be waived to ease the transition into the new reporting standards. However, a gross negligence penalty may still apply in severe cases of non-compliance.

The CRA has updated the reporting requirements for trusts, specifically affecting bare trusts, for tax years ending after December 30, 2023. As part of Bill C-32, which became law on December 15, 2022, trusts now face new reporting obligations, effective for tax years ending on December 31, 2023, and onward. There are three main changes under the new rules:

  • All trusts, unless certain conditions are met, will be required to file an annual T3 Return with the CRA.
  • Trusts that are required to file a T3 Return, other than listed trusts, generally need to complete Schedule 15 in their annual T3 return to report beneficial ownership information.
  • Bare trusts are subject to the new reporting rules.

Bare trusts, traditionally used for privacy, tax minimization, and efficient property transfer, are now required to file an annual T3 trust return. This marks a departure from previous guidelines, where bare trusts were often exempt due to their unique legal and tax treatment, where the beneficiary controls the trust's actions and directly reports income and gains.

The core of the new requirements is the need for detailed beneficial ownership information. Trustees must report names, addresses, birth dates, tax residency, and tax identification numbers for all significant parties associated with the trust. This includes trustees, beneficiaries, settlers, and individuals with the power to influence the trust's decisions.

Trusts that have existed for less than three months or hold assets under $50,000 in certain categories are exempt from these new requirements. However, failure to comply can result in steep penalties, including a daily late filing fee and a gross negligence penalty in intentional or careless non-compliance cases.

For detailed guidance and assistance with navigating these new requirements, trustees are encouraged to consult the CRA's website for comprehensive information and resources.

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