March 28, 2024 Update – CRA Announces Bare Trust Reporting No Longer Required for 2023

For the 2023 tax year, Canada Revenue Agency (CRA) has announced that Bare Trust arrangements are no longer required to file a T3 return and Schedule 15 beneficial ownership form. This comes after months of CHBA pushing for an exemption, or at minimum a filing extension, on this issue. CHBA argued that there needs to be greater guidance on determining a bare trust arrangement. Given the significant penalties for not filing, this is a win for CHBA members, especially considering the breadth of new home sales transactions that could be implicated under the original regulations. CRA has noted that they “will work with the Department of Finance to further clarify its guidance on this filing requirement.” CHBA will use this time to advocate for an exemption on the regular process of building and selling homes under the revised guidance and rules. The full announcement can be read here.

This exemption does not include express trusts. These trusts still need to file the required information by April 2nd 2024. CHBA continues to advocate for an exemption for these trusts as well, as they are often created in compliance with provincial statutes. CHBA has worked extensively to get greater clarity, and for proper support for software systems for compliance, though an exemption is the ultimate solution.

March 20, 2024 Update

For tax years ending on December 31st 2023, there are new mandatory trust reporting requirements for both formal and informal trusts. The narrow list of exempt trusts means that a type of informal agreement called a “bare trust” is also required to file a T3 Trust Income Tax and Information Return for the first time. Each T3 Return will also need to be accompanied by a cumbersome Schedule 15 Beneficial Ownership Information of a Trust form, which requires the name, address, birthday, and SIN of all people/entities involved in the trust. In most cases, these bare trust arrangements will not have taxable income to report on the T3 Return.

CHBA continues to push for greater and more detailed guidance from CRA on making a legal determination on the existence of a bare trust arrangement. Canda Revenue Agency (CRA) defines a bare trust 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. A trustee can reasonably be considered to act as agent for a beneficiary when the trustee has no significant powers or responsibilities, the trustee can take no action without instructions from that beneficiary and the trustee’s only function is to hold legal title to the property.” The full FAQ on requirements and compliance can be found here.

CHBA has raised the issue that it is inappropriate for businesses to determine if they need to report the informal existence of a bare trust arrangement without clear and in depth guidance on how to do so. This is due to the steep penalties imposed on those found to have not filed upon audit at some point in the future. Therefore, greater guidance beyond a definition is required.
Currently, the deadline to file is April 2nd, 2024 for the required T3 Return and Schedule 15 form. CHBA advises that members heed the advice from their accountants about if their operations of selling homes, holding preconstruction deposits, or transferring property title would constitute a bare trust arrangement. At this time, CHBA is not able to advise members on if their specific situation means they must comply with these new trust reporting requirements. Fortunately, CRA is taking an “education first” approach and waving penalties for late filings (excluding gross negligence) only for bare trusts and only for the 2023 tax year.

CHBA will push for greater clarity on this issue and continue its advocacy against the ratcheting up of regulatory compliance on residential construction.

 

December 2023

The Situation

Beginning with the 2023 tax year and with very few exceptions, the majority of trusts accounts in Canada will be required to file a T3 Statement of Trust Income Allocation and Designations to the Canada Revenue Agency (CRA). In addition, the name, birthday, tax identification number (social insurance number), and physical address of all parties and/or entities involved will need to be disclosed through a Schedule 15 Beneficial Ownership Information of a Trust form. Both the T3 slip and Schedule 15 form will need to be filed for each trust, even if there is no taxable income to declare. According to the government, the new reporting requirements contained in Bill C-32 arose from the CRA’s need for information to assess the tax liabilities of trusts and their beneficiaries and to help counter aggressive tax avoidance and money laundering activity. Given the narrow scope of exemptions, and Bill C-32’s lack of power to expand the list of exempted trusts, these new reporting requirements will impact trusts used extensively by the residential construction industry.

CHBA Advocacy

CHBA engaged with the Ministers’ offices for Finance and for Housing on this issue, brought it to the attention of the Prime Minister’s Office, engaged with the opposition critic for red tape, and engaged extensively with CRA officials on this issue.

CHBA engaged officials with concerns about the heavy impacts these new reporting obligations will have on trusts used to hold condominium preconstruction deposits. In seeking a filing exemption for condominium preconstruction trusts, CHBA argued that statute(s) within various condominium-related provincial legislation stipulate that deposits must be held in trust by a lawyer. For example, Ontario’s Condominium Act states in section 81(1) “a declarant shall ensure that a trustee of a prescribed class or the declarant’s solicitor receives and holds in trust all money, together with interest earned on it, as soon as a person makes a payment.” Put simply, the creation of these trusts is in accordance with real estate consumer protection laws and not created by a voluntary means to hide or reduce tax obligations. CHBA’s position is that the legal requirement of holding deposits in trust means that these are not “express trusts” and should be considered an exemptible “deemed trust.” CHBA made clear that the information of thousands of purchasers that would need to be included in Part B of the Schedule 15 form will drive up builders’ legal costs, as it is the law firm that operates the trust and is responsible for the trust filings. Compliance will materially raise the prices of current and future condominium units. Furthermore, CHBA pointed out the duplicative regulation these trust reporting requirements present as real estate developers are already subject to a robust anti-money laundering compliance program overseen by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). The government has not made clear how basic personal information will help identify financial crimes.

Unfortunately, the exemption sought by CHBA has been unofficially denied by the CRA—as trusts for preconstruction deposits still meet the definition of an “express trust.” The wording of Bill C-32 and the lack of power to alter the pre-existing narrow list of exempted trusts means that many industries will now be subject to these reporting requirements, including oil and gas, as well as non-profits and charities. In further discussions, looking for avenues to minimize the regulatory burden, the CRA stated that the Schedule 15 form that accompanies each T3 form is the only way to file the required personal information with them. CHBA is disappointed with the outcome of this ruling and now cites this new trust reporting policy as a specific example of how red tape regulations continue to add to the cost of new housing.

Regarding the collection of personal information, CHBA noted that the collection or sharing of purchasers’ SIN or other tax identification numbers between builders and law firms presents an inherent privacy concern. However, CHBA was advised by CRA officials that the requirement of this information, and the reasonable efforts to obtain this information, supersede privacy concerns.

Current Status

At this point, given that the government has been unwavering in its refusal to make changes, it will be important that builders and their retained legal representatives that operate deposit trusts on their behalf collaborate to ensure purchaser information is as complete and accurate as possible to avoid noncompliance penalties.

CHBA recommends that builders who operate trusts to hold deposits, or any trust account structure of any kind, be advised by their accountants and legal representative on how to best prepare for the 2023 tax year—as the CRA must receive your filing by April 2nd, 2024. This may include creating an automated process of filling out the Schedule 15 form using information contained in a spreadsheet. More detailed information about the reporting requirements can be found on this CRA frequently asked questions page.