By Terrance S. Carter and Adriel N. Clayton

The Canada Revenue Agency (the “CRA”) released Document 2024-1005851C6 (the “Document”), addressing three questions concerning trust reporting involving bare trusts posed on May 7, 2024 at the 2024 Conference for Advanced Life Underwriting (CALU) Roundtable. By way of background, subsection 150(1.3) of the Income Tax Act (“ITA”) provides that for the purposes of section 150, a trust includes “an arrangement under which a 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” (i.e. commonly referred to as a “bare trust”). However, the background forming the basis of the Document explains that pursuant to subsection 104(1), except for the purposes of certain provisions set out in that subsection, a trust is deemed not to include a bare trust unless the trust is described in any of paragraphs (a) to (e.1) of the definition of “trust” in subsection 108(1).

The specific questions posed to the CRA relate to determining the calendar year of bare trusts for purposes of filing T3 trust returns for bare trusts in different situations.

Before addressing those questions, the CRA provided a reminder that, in accordance with its announcement on March 28, 2024, bare trusts are exempt from filing a T3, Income Tax and Information Return (“T3”), including Schedule 15 (Beneficial Ownership Information of a Trust) for the 2023 tax year, unless the CRA makes a direct request for a T3 to be filed. For details on the March 28, 2024 announcement, reference can be made to our April 2024 Charity & NFP Law Update. For details on the recent proposed extension of the T3 filing exemption for bare trusts for the 2024 taxation year by the Department of Finance on August 12, 2024, reference can be made to our Charity & NFP Law Bulletin 528.

The first question posed to the CRA was whether a bare trust would have a calendar year end for purposes of complying with section 150 of the ITA, despite not being considered a trust in most other provisions of the ITA. In response, the CRA referenced subsection 249(1) of the ITA, stating that except whether expressly otherwise provided, “a taxation year is […] (c) in any other case, a calendar year,” and that for the purposes of complying with section 150, bare trusts therefore will have a calendar year end.

The second question posed concerned whether a bare trust arrangement that is wound up during the year would have a taxation year end on December 31^st of that year. To this, the CRA stated that with the exception of graduated rate estates, in the year that a trust is wound up and assets are distributed, “there is no provision that would cause the taxation year to be a period other than a calendar year.” On this basis, the CRA stated that bare trusts wound up during the year would have a taxation year end on December 31^st of that year. The filing deadline for bare trusts following a wind-up would then be 90 days following calendar year-end.

The final question considered a scenario where a corporation was created solely to act as the legal titleholder of a property (the “Nominee Corp”), where both the legal and beneficial ownership was sold early in the calendar year and the Nominee Corp was liquidated and dissolved. The CRA was asked, in this scenario where the Nominee Corp no longer existed, whether the Nominee Corp was responsible for filing a T3 with Schedule 15 in the following year. The CRA responded, stating that the Nominee Corp appeared to be the trustee of a bare trust regarding the sold property. As the trustee is responsible for filing a T3 required under paragraph 150(1)(c) of the ITA for the taxation year of the trust, the Nominee Corp would therefore be responsible for filing the T3.

​Read the August 2024 Charity & NFP Law Update