Trusts, including family trusts and bare trusts, with a tax year ending after December 30, 2022, will be required to file a T3 trust tax return and disclose the following information for all settlors, trustees, beneficiaries (including contingent), protectors, and each person(s) who has the ability to exert control or override trustee decisions over the appointment of income or capital of the trust:
- Date of birth
- Jurisdiction of residence
- Tax identification number
A bare trust arrangement exists where the trustee only holds the legal title to the property and has no other duties to perform or powers with respect to the property. The trustee acts as an agent for the beneficial owner and is to transfer the ownership of the property over at the direction of the beneficial owner. Bare trusts include the following situations:
1. Individual holds legal title to the real estate property that a corporation is the beneficial owner of and has no true power over how the real estate property will be used, and any benefit will be received by the corporation. A T3 trust tax return is required to disclose this bare trust arrangement.
2. When an adult child is added on legal title to their parent’s home for nil consideration, a presumption of trust exists. The adult child is presumed to be holding the property as an agent for the parent during the parent’s lifetime and as an agent for the executor of their parent’s estate to be distributed based on the terms of their parent’s will or provincial laws if the parent dies intestate. A T3 trust tax return is required to disclose this bare trust arrangement.
3. When an adult child is added as a joint account holder to their parent’s bank account for purpose of assisting their parent with their finances during their parent’s lifetime and the child does not use the joint account funds for their own benefit. A T3 trust tax return is required to disclose this bare trust arrangement.
Failure to file or provide the additional information about the beneficial ownership will result in a minimum penalty of $100 or $25 per day for the missing information up to a maximum of $2,500.
An additional penalty for making a false statement or omission and for failing to file, knowingly or due to gross negligence, is the greater of:
- $2,500, or
- 5% of the highest total fair market value of the properties in the trust in the year
Trustees will be responsible for these penalties. Therefore, it is prudent that the trustee makes a reasonable effort to compile the required disclosure information and to identify any property held in a bare trust whether held by an individual, trust, corporation, or partnership.
As a result, clients with existing trusts and bare trusts should summarize the required information by filling out our Trust Disclosure Form that can be downloaded at: http://www.lohncaulder.com/checklists. Questions and completed forms should be sent to Lilian Tseng at firstname.lastname@example.org. Of course, if we prepare the individual tax returns of all the settlors, trustees, and beneficiaries of the trust, then we would already have this information.
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