New Tax Filing Obligations for Property Co-Owners
posted in: Real Estate + Wills and Estate Planning
In the tax world, change is the only constant. The year 2024 rings in new tax-reporting obligations for certain trusts that will likely impact many Canadians, especially those who co-own properties. The Canada Revenue Agency (CRA) has rolled out new rules requiring trusts, with a few exceptions, to annually file a T3 Trust Income Tax and Information Return.
Impacts on Co-owners: What You Need to Know About the New T3 Trust Filing Obligations
The new rules, part of Canada’s ongoing efforts to crack down on tax evasion and strengthen anti-money-laundering measures, will have unexpected implications for Canadians unknowingly deemed part of a trust. A trust is a legal relationship where property is transferred by an owner (the settlor) to a trustee, who holds legal title to it for the benefit of another person or persons, known as the beneficiaries. The new tax-filing requirements also apply to “bare trusts,” where the trustee acts only at the direction of the beneficiary, without independent powers or responsibilities over the property.
Identifying Bare Trusts: Common Scenarios That Trigger T3 Filing
The catch is that many Canadians may unwittingly be part of a bare trust. There’s no requirement to sign paperwork to establish a bare trust formally, which adds to the confusion.
For example, a bare trust may be created when a family member’s name is added to the title of another family member’s home, vacation property, farm or other land—e.g., children holding title to their aging parents’ homes or land solely to ease the eventual transfer of the property; or parents holding the title to their adult child’s home because they co-signed their mortgage. These setups may trigger a T3 filing requirement.
Adding to the complexity, Canadians who have their names added to their elderly parents’ bank or investment accounts to assist with bill-paying and other transactions could also potentially be part of a bare trust. The requirement to file a T3 return depends on the specifics of the situation.
Late-Filing Relief and Exceptions for Bare Trusts
The CRA has announced it will waive late-filing penalties for bare trusts that submit their T3 returns for the 2023 tax year after the March 30, 2024 deadline. However, this relief does not apply in cases where taxpayers knowingly fail to file a return, or in cases of gross negligence or false statements.
Proactive Measures: Consultation with Tax Experts at KMSC
In light of these new rules, it is essential for Canadians who co-own properties or have their names on family member’s property or financial accounts to consult with a tax expert to understand if these new filing rules apply to them. Contact KMSC to navigate you through this process.