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Did you co-sign your kid’s mortgage? There are new tax reporting rules to know

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Four days before the April 2 deadline, on Thursday, the Canada Revenue Agency (CRA) announced that it will no longer require “bare trust” reporting from Canadians, as it had introduced for the 2024 tax season.

“In recognition that the new reporting requirements for bare trusts have had an unintended impact on Canadians, the CRA will not require bare trusts to file a T3 Income Tax and Information Return (T3 return) … for the 2023 tax year, unless the CRA makes a direct request for these filings,” the agency said in a statement.

What is a bare trust arrangement?

Bare trusts mean when an asset is technically owned by someone else but is legally owned by someone else.

A bare trust in Canada is a straightforward arrangement where one person (the trustee) holds the title to property or assets, but they do so for the benefit of someone else (the beneficiary).

Trustees don’t make decisions about the assets; they simply follow the instructions of the beneficiary. The beneficiary has all the real control and gets all the benefits from the assets, like any income they generate.

As per the CRA, instances of bare trust arrangements include:

 

  • A bank account opened on behalf of a minor by a parent or grandparent
  • Any bank account that is shared: Between an adult child and their elderly parent.
  • A parent co-signing a mortgage for their child

Given how difficult it is for young people’s wages to keep up with the growing costs of living and homeownership, a growing number of Canadians probably find themselves in this situation when they co-sign a mortgage for their child or grandchild. There aren’t many options left for prospective homeowners without family financing, particularly in the wake of the COVID-19 pandemic.

How do the new reporting requirements apply to bare trusts?

Bare trusts must file T3 Trust Income Tax and Information Returns for the first time in 2023. Trustees have until April 2 to file with the CRA, which is noticeably earlier than the general tax deadline of April 30 for individuals.

If you have a bare trust arrangement, getting a trust identification number is the first thing you should do. You can apply for one on the CRA website, and after that, you can file electronically.

One more requirement is Schedule 15, which is also referred to as Beneficial Ownership Information of a Trust. The new Schedule 15 forms are a component of the T3 Return and cannot be filed separately, even in the event that the trust has no income to report.

What are the non-compliance penalties?

Canadians may be subject to several fines or penalties if their bare trust returns are not filed by the deadline. For late filing, the standard fee is $25 per day, with a $100 minimum and a $2,500 maximum penalty.

Additional information

Canadians who are unsure about the procedure can get assistance from the CRA website. For instance, the CRA provides a detailed tutorial on how to file T3 trust returns. Click here for the guide

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