Recent federal initiatives in Canada are reshaping how bare trusts and trusts in general approach their filing obligations, particularly with regard to the Alternative Minimum Tax (AMT).
While some proposed changes remain in draft legislation, they signal significant shifts for trustees and beneficiaries to be aware of. Understanding these updates is crucial for ensuring compliance and avoiding potential penalties.
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Bare Trust Filing Requirements
No Filing Requirements for 2024
One key takeaway from the draft legislation is that bare trusts will not need to file a return for the 2024 tax year. This temporary relief is part of the government’s transitional approach as it finalizes the new rules.
New draft legislation has introduced a broader definition of bare trust exemptions. Under the proposed rules, a bare trust may be exempt from filing if:
- The trustees and beneficiaries are individuals, and all beneficiaries are related to each trustee.
- The trust holds any type of asset with a fair market value less than $50,000. This exemption had existed previously, but CRA is moving to reduce some of the complexity relating to qualifying assets.
- There is a further exemption for some assets with a fair market value less than $250,000. These would include GICs, cash, personal-use property and listed securities.
This change aims to reduce the administrative burden where the reporting value is minimal. However, these exemptions remain subject to final legislative approval, meaning trustees must stay informed about any amendments that could impact their filing status.
Reinstated Filing Requirements in 2025
Assuming the legislation moves forward as planned, filing requirements for bare trusts that fall outside the expanded exemptions listed above will resume in the 2025 tax year. Trustees who benefit from the 2024 exemption should prepare for renewed obligations the following year. Staying ahead of these changes by maintaining proper documentation and consulting with tax professionals will be critical to understanding compliance filing obligations and avoiding potential penalties.
Filing Deadlines and Extensions
Standard Filing Deadline: March 31, 2025
As in previous years, the standard deadline for trust tax filings remains March 31. Given the increased complexity surrounding AMT and trust reporting, it is advisable to start gathering necessary documentation early. Trustees should communicate with brokers and financial institutions well in advance to ensure they receive the required information on time.
Extension for Trusts with Capital Dispositions
Trusts that report capital dispositions may qualify for penalty and interest relief on f T3 returns filed after the March 31, 2025 regular deadline if the return is filed by May 1, 2025. This extension accounts for potential delays in receiving updated tax slips, particularly due to ongoing discussions around changes to the capital gains inclusion rate. However, trusts that do not report capital dispositions must adhere to the standard March 31 deadline.
Alternative Minimum Tax (AMT) Changes for Trusts
What’s Changing with AMT?
In addition to adjustments for bare trust filings, the 2024 tax year also marks significant changes to the AMT framework for trusts. Previously, most trusts would not be subject to AMT if they allocated income and gains to beneficiaries or offset them with eligible deductions. However, under the enacted and proposed reforms, long-standing exemptions are being eliminated, meaning more trusts will be subject to AMT.
Potential Tax Liabilities for Trusts
The implications of these changes vary, but many trusts that previously had no tax liabilities may now face an AMT assessment. Allocations of income, deductions, and capital gains distributions are more likely to trigger an AMT calculation – with the most likely situations being trusts that have deductions related to interest. While the resulting tax amount may be small for most trusts, it is still essential for trustees to:
- Evaluate whether their trust will be affected
- Determine potential AMT exposure
- Plan for timely tax remittance
By working with tax advisors early, trustees can assess their liabilities and take appropriate steps to mitigate any unexpected tax burdens.
Next Steps for Trustees
Reviewing Trust Structures
Trustees should take a proactive approach by reviewing their trust structures before the 2025 filing season. Key considerations include:
- Identifying whether the trust qualifies as a bare trust under the new exemption criteria
- Preparing for reinstated filing obligations if applicable
- Assessing the potential impact of AMT changes and adjusting tax planning strategies accordingly
Staying Informed on Legislative Updates
Since many of these provisions are still in draft form, legislative developments could bring further changes. Trustees should:
- Monitor Canada Revenue Agency (CRA) announcements
- Stay engaged with tax professionals and legal advisors
- Regularly review trust transactions to ensure compliance
Conclusion
The evolving landscape of bare trust filings and AMT rules will significantly impact how trusts approach tax compliance in 2024 and beyond. While temporary relief may ease the burden for some trustees in 2024, the proposed reinstatement of filing requirements in 2025 underscores the need for careful planning. Additionally, the expansion of AMT obligations means more trusts may face tax liabilities they had not encountered in the past. By staying informed, reviewing trust structures, and working closely with tax professionals, trustees can effectively navigate these changes and maintain compliance with CRA requirements.
Further Reading;
Enhanced reporting rules for trusts & bare trusts FAQ
