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New Tax Rules for 2023: Bare Trusts Face Unexpected Reporting Requirements and Penalties – UPDATE

New Tax Rules for 2023: Bare Trusts Face Unexpected Reporting Requirements and Penalties – UPDATE

UPDATE: CRA exempts bare trusts from trust reporting requirements for 2023 tax year.

The term “bare trusts” is explained as a legal arrangement where one person (the trustee) holds the legal title of a property, while another person (the beneficiary) retains complete control and enjoys the benefits and risks associated with the property. The article emphasizes that bare trusts are not exclusive to formal written arrangements and that a substantial number of Canadians act as bare trustees without being aware of it.

The piece provides common examples of bare trusts, including scenarios involving family members, corporations, and business partners. Notably, individuals engaging in these arrangements may now be subject to penalties for failure to file a T3 Trust Income Tax Return.

The rationale behind the rules is to address tax evasion, money laundering, and other financial crimes. However, the article highlights potential unintended consequences for unsuspecting Canadians and suggests consulting with legal professionals to determine whether their situation is subject to the new reporting rules.

The Canada Revenue Agency (CRA) has indicated that it intends to enforce these rules through audits and penalties. The penalties for late filing range from $25 per day to a significant gross negligence penalty based on the maximum value of property held by the trust during the relevant year.

The article advises those affected to consult with accountants or lawyers specializing in trusts to navigate the complex reporting requirements.

As highlighted in the article, our lawyers are experienced in assisting clients on Vancouver Island, including the Comox Valley region, to plan for minimizing these kinds of reporting obligations as part of our focus on helping our clients optimize tax, financial, and estate planning outcomes. If you are concerned that the new regulations may affect you, we invite you to get in touch.

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