New Reporting Requirements for Bare Trusts
The Canadian government has proposed new reporting requirements for bare trusts, which will be effective starting in 2023. A bare trust is a trust in which the trustee holds legal title to the trust property but has no discretion over the distribution of the trust’s income or capital.
Under the new rules, bare trusts will be required to report the identity of all trustees, beneficiaries, and settlors of the trust, as well as any other persons who can exert control over the trust. This information should be reported to the Canada Revenue Agency (CRA) annually beginning in 2023, regardless of whether the trust has any income to report.
The reporting requirements will apply to both resident and non-resident trusts, and failure to comply with the new rules may result in penalties. The CRA will also have the power to request additional information from the trust, including financial statements and documentation relating to transactions involving the trust property.
It is important for trustees of bare trusts to be aware of these new reporting requirements and to ensure that they follow the regulations. Professional advisors can assist with understanding the requirements and filing the necessary reports to the CRA.
The new requirements will impose some additional burdens on family offices:
- The cost and time of completing an additional annual tax return for bare trusts
- Ensuring documentation is on hand and accessible to tax preparation professionals
- Reviewing the costs & benefits of continuing to use bare trust structures
Your family office should have a folder on a shared drive dedicated to documentation for each of your real estate properties including receipts for expenses incurred, founding documents (corporations/trusts), tax returns if applicable, and other ownership documents.