Bare Trusts and New Trust Reporting Rules

Marco Iampieri B.A., JD, M.B.A

Striking a balance between upholding Canadian taxation laws and privacy concerns is challenging for policy makers and legislatures. On February 4th, 2022, the Minister of Finance released draft Income Tax Act legislation that increases reporting requirements for most Canadian resident trusts. The new trust reporting requirements will allow the Canada Revenue Agency to better combat tax evasion and increase clarity regarding beneficial ownership of assets.

If the draft legislation becomes law as drafted, the prescribed information required to be reported by trusts include details or trustees, beneficiaries, settlors and any person that can exert influence over use of capital or income of the trust.

Bare trusts are not excluded from new filing requirements. Bare trusts are inter vivos (trusts created in a settlor’s lifetime) or testamentary trusts (trusts created upon or after one’s death). A bare trust is a trust entity that has a basic trust constitution or trust deed. The trust deed of a bare trust states that the beneficiary of the trust has the right to both income and capital of the trust and maintains discretion as to when the income or capital is called into the beneficiary’s hands. The trustee has the obligation to administer the trust in accordance with the trust deed and provide the income and capital to the beneficiary upon request.

If the draft legislation becomes law as drafted, bare trusts with over $50,000.00CAD of assets must report details of the bare trust, including beneficiaries, settlors and any person that can exert influence over the use of capital or income of the trust for taxation years ending after December 20, 2022.

Key Takeaway: Trusts provide a veil of privacy. Through the new trust reporting laws, the CRA will have a better picture about trust dealings in Canada, and better combat tax evasion. 

Author Byline: Marco is a faculty member at Knowledge Bureau, and practices tax law in Barrie, ON. 

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