Ok. Maybe I’m being a little melodramatic with the title of this post but since I have previously written on Bare Trusts I had to do something fun with the title. What’s not so fun is the new CRA requirement for all trusts to file a return every year from now on. As numerous media articles, including this one, have explained, this new reporting requirement affects many people who have no idea they are part of a bare trust arrangement. The concept is non-intuitive and incredibly complicated to understand for most laypersons. This will certainly result in a high degree of unintentional non-compliance and potentially have significant repercussions for many taxpayers who would otherwise be models of compliance.

Some key information from the article above includes:

“The CRA defines bare trusts as “a trust arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property.””

“Examples of a bare trust arrangement, according to the CRA, would be:

• A financial account made by a parent or grandparent for a minor
• Any joint bank account: For example, between an adult child and their elderly parent
• A parent co-signing a mortgage for their child

Trusts that hold less than $50,000 in assets may be exempt from the reporting requirements. Out of the examples above, this is likely the scenario for most joint accounts between family members.”

“In order for a co-signed mortgage to count as a bare trust agreement, Abdulla says financial institutions require the parent to also be included on the title.

“It’s the being on title that could create the bare trust arrangement because then you have a number of people on the legal title for a home or a condo, and the beneficial ownership might not be all the people listed,” he explains.”

“If Canadians don’t file their bare trust returns by the deadline, they could face multiple fees or penalties. Typically, the fee is $25 per day for late filing, with a minimum penalty of $100 and maximum of $2,500.”

“Abdulla says that if you have a bare trust arrangement, your first step is to obtain a trust identification number. There is a process to apply for one on the CRA’s website, but then you will be able to file electronically.”

““Alternatively, you do have to file an actual T3 trust income tax return which is a bit more difficult than a typical, personal tax return. And so we find it’s very important for Canadians to… identify the best way to file that trust tax return as soon as possible,” Abdulla says.”

Should you be assessed for tax owing consult with a ZheroTax pro who can advise you on your probability of winning and offer to represent you on contingency for a percentage of the tax saved.