CRA significantly expands proposed trust reporting requirements to include bare trust arrangements

February 15, 2022 | Brittany Sud, Stephen Sweeney

In 2018, the Department of Finance Canada released Legislative Proposals, and Explanatory Notes that dealt with, among other topics, the Reporting Requirements for Trusts as first announced in Budget 2018. We posted about these new requirements and some of their consequences in past articles, namely, “New trust reporting rules and ongoing trust compliance” and “New trust reporting requirements – A status update!

The new filing and reporting requirements were proposed to apply to trusts, other than “exception trusts”, for their taxation years ending after December 30, 2021.

Legislation and regulations implementing the new trust filing and reporting requirements has not yet been passed into law. On January 14, 2022, Canada Revenue Agency issued an update:

“The legislation to support this proposed measure is pending. The CRA will administer the new reporting and filing requirements once there is supporting legislation that receives Royal Assent. The CRA will continue to administer the existing rules for trusts, under enacted legislation. The proposed beneficial ownership reporting requirements will not be part of the published 2021 T3 income tax return. This note will be updated when more information is available. You should not delay filing your 2021 T3 tax return.”[1]

Three weeks later, on February 4, 2022, the Department of Finance Canada released for public comment a set of draft legislative proposals to implement certain tax measures, including revised “Reporting Requirements for Trusts”. Buried within these proposals, released on a Friday afternoon, is a significant change that will upend a key provision of the Income Tax Act[2] (the “Act”), and tax practitioners’ understanding, generally, of trust reporting requirements.

Subsection 104(1) of the Act provides that, except for the purposes of certain specified provisions, references in the Act to trusts are considered not to include an arrangement where a trust can reasonably be considered to act as agent for its beneficiaries with respect to all dealings in all of the trust’s property. These arrangements are generally known as and understood to be “bare trusts”. Trusts described in paragraphs (a) to (e.1) of the definition “trust” in subsection 108(1) of the Act are expressly not affected by this exclusion.

Subsection 104(1) of the Act is proposed to be amended to provide that the exclusion of “bare trusts” from references in the Act to trusts does not apply for the purposes of section 150, that is, for the purposes of the requirement to file an annual return of income in prescribed form and that contains prescribed information, including the new filing and reporting requirements for trusts.  For each such trust, the prescribed information will include the name, address, date of birth (where applicable), jurisdiction of residence, and taxpayer identification number of each person who is a settlor, trustee, beneficiary, or person who has the ability (through the terms of the trust or a related agreement) to exert influence over trustee decisions regarding the appointment of income or capital of the trust.

What this means is that upon enactment of the proposed amendment to subsection 104(1), practitioners’ understanding of the scope of the application of the Act to arrangements described as being an exception to subsection 104(1) generally will change fundamentally. Such arrangements which are currently ignored entirely for all purposes of the Act, will now become reporting entities.

It is beyond the scope of this article to engage in an analysis of the true legal characterization of such arrangements, including whether such arrangements are trust relationships or agency relationships, for example. And it should be noted that while such arrangements are colloquially referred to as “bare trusts” that terminology is not used in subsection 104(1). A new jurisprudence will need to be developed to fully understand the scope and limitations of the phrase, “an arrangement under which the trust 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”.

What will be immediately obvious, however, is that, throughout Canada, there are many such arrangements in existence to which no thought has ever been given in respect of tax compliance. The use of bare trusts is common in joint venture arrangements. Although practices differ by province, many real estate holdings are structured under such arrangements for the purpose of the holding of legal title. And in high-probate tax jurisdictions including Ontario, such arrangements are frequently used to shelter assets from those taxes on death.

If this amendment is enacted many taxpayers will need to fundamentally reconsider their tax compliance obligations. And to add to the jeopardy, taxpayers will need to be alert to the false statement or omission provisions to be added to the Act as new subsections 163(5) and (6). Consider, for example, a corporate bare trustee holding lands for beneficial owners with a fair market value of $100MM; the annual failure-to-file penalty under paragraph 163(6)(b) would be $5MM.

The proposals provide that the amendments will apply to trusts for taxation years ending after December 30, 2022. This provides some relief, as it will allow time for taxpayers to identify arrangements that will be subject to the new rules and to begin collecting the information required to be reported. In the case of such arrangements that no longer serve a useful purpose or have little or no activity, decisions may need to be made whether to terminate the arrangements before the new rules become applicable.

Canadians are invited to provide comments on the draft proposals relating to the reporting requirements for trusts by April 5, 2022. Miller Thomson’s Private Client Services Group continues to monitor developments and will provide a further update when legislation is passed to enact the new trust reporting requirements. Until then, please contact a member of Miller Thomson’s Private Client Services Group if you need to consider the implications of an existing, or new, arrangement that could be affected by the proposed new rules.


[1] Government of Canada, “Reporting Requirements for Trusts”, Government of Canada, January 14, 2022, online: <https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/budget-2018-equality-growth-strong-middle-class/reporting-requirements-trusts.html>.

[2] Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.).

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