Bare Trust Traps
Bare trusts are a new tax concept that comes into effect for 2023 so the first trap is that you might have a bare trust without knowing it. Examples might include being joint on your parents accounts to pay their bills, being joint on the title of a house to avoid probate on the transfer of the house at death etc. The T3 Trust Guide for 2023 provides a semi readable description of bare trusts but you may well need to contact an accountant to be sure if you have one.
A second trap is that if you have to file a T3 Trust Return for your bare trust you have to do it within 90 days of year end. You do not have until the end of April. There are substantial penalties for filing T3 Trust Returns late even though you actually pay any tax owing on the bare trust on the beneficiaries tax return and only submit information about the bare trust on the T3 Trust Return. The CRA has said they may waive late filing penalties for bare trusts for 2023.
A third trap is that you may have to file a T3 Return for a bare trust, even if if you don’t receive a T4 slip for the account. For example, if your institution doesn’t remit T4s for small amounts of interest there could still be a small amount of tax payable on that interest. Trusts don’t get personal credits so even small amounts of income can result in tax owing for which the trust has to file a T3 Return. You report income from bare trusts on the beneficiaries tax returns where it gets lumped in along with unrelated income and credits which may or may not result in taxes owing. If there are multiple beneficiaries of the trust it’s entirely possible that one might pay tax on the income from the bare trust and another might not. Since personal returns are due at the end of April, you may not know whether the bare trust has to pay tax until after the T3 Return filing deadline. This is based on my reading of case B at “Who should file” in the 2023 T3 Trust Guide because it simply states “has tax payable” which I read to include tax payable either on the T3 Trust Return or a beneficiaries return. I may be wrong in this reading. It’s also the first year for bare trusts and the Ministry of Finance may not have thought this through completely.
I’m not clear what the Ministry of Finance is trying to achieve with the bare trust rules, especially related to bank accounts. The banks already report this income to the government, the only issue is which beneficiary is reporting the income. There is already a rule that whoever contributed the capital to a joint account pays the taxes on the resulting interest. Does the CRA have any evidence that is actually a problem? How about enforcing the existing rule with audits and education instead of more reporting? After all the ongoing missteps of this government, I assume this sledgehammer reporting approach to bare trusts is financial tyranny until they demonstrate otherwise.
Rally at Markham and Lawrence this Saturday from 11:00am - 12 noon
Please bring a freedom related sign, flag, flyers etc. if you have them. I have a now autographed copy of Tamara Lich’s book “Hold the Line” to lend out.
If you can’t see us from the corner at Markham and Lawrence, then check the parking lot in front of Healthy Planet
Other rallies on Saturday:
Presumably there is a noon rally at Queen’s Park north side.
Freedom Convoy second anniversary Party in Ottawa