New Tax Changes for Trusts and Real Estate – 2022/2023

In the Spring 2022 Budget, the Federal Government has maintained its intent to make changes to Trust reporting as well as Real Estate reporting in support of an Underused Homes Tax (UHT).

The Trust reporting will apply to any clients with an existing trust including family trusts, and now also includes anyone in a bare trust relationship. The Real Estate reporting includes Corporations owning residential properties.

We are starting the data collection process early to ensure that each of our clients can fulfill their reporting obligations. 

Family Trusts

 Our staff will be reviewing trust documentation and contacting our clients right through March 2024.

Each of our trust returns will need to have details provided for each reportable entity involved in a trust.

This includes:

Settlors, Trustees, Corporate Beneficiaries, and Individual Beneficiaries.

Each entity will have to provide:

– name

– type and classification of entity

– address

– date of birth (if a natural person)

– country of residence

– taxpayer identification number, such as social insurance number, trust account number, business number or taxpayer identification number used in a foreign jurisdiction

Most of our clients will have already provided all beneficiary and trustee information already as part of our standard set-up process.  We probably will need you to provide the Settlor’s contact information as well as newly added beneficiaries.   

Please use the below form to submit to our office.


Bare Trust Reporting

What Is a Bare Trust?

A bare trust is any relationship where the legal title and beneficial ownership differ. Until now, the existence of these bare trusts did not attract any sort of additional filing requirements. Under the proposed legislation many of these relationships require a T3 trust return to be prepared and filed.

The two most common examples are:

Real Estate

– Where one party holds the legal title to a property, but the beneficial ownership has been transferred to another entity. We might have helped you do this if we performed a reorganization or suggested you to sign a trust agreement in the past.

– Any transaction where you were able to defer Property Transfer Tax by delaying the transfer of title.

We have launched a process to take place concurrent with our normal tax planning in early 2023 to review our records for any evidence that a bare trust relationship exists inside your corporate group. Our goal will be to answer the question “do you hold any bare trust assets?” and then determine what information needs to be collected.

Our staff will take the time to provide additional support in arriving at the correct determination as they go.

Vehicles

– Where a vehicle was purchased personally and then transferred to a corporation later.

– Where a vehicle was moved from one entity to another without changing the registered owner with ICBC.

For a simple vehicle trust agreement, there are several options available at varying costs.  As our clients, the choice is yours.

One option is to file the required trust returns each year.  Alternatively, you could take action to transfer the title to the company, paying the required PST on transfer.

Should we determine that a bare trust exists and needs to be reported under the new rules, we will be happy to prepare the required returns.  As we have not yet been provided new T3 return examples, we are unable to quote at this time.

Penalties

The current penalty for not filing a T3 return when required will continue to apply. It will also apply if the required additional information is not included with the return. The penalty is $25 for each day late, with a minimum penalty of $100 and a maximum of $2,500.

The new rules also impose a significant additional gross negligence penalty where a failure to file the return was made knowingly or due to gross negligence.

The additional penalty would be five per cent of the maximum value of property held by the trust during the relevant year, with a minimum penalty of $2,500. This penalty would also apply to false statements and omissions amounting to gross negligence as well as a failure to respond to a CRA demand to file.

In advance of our staff contacting you, we recognize that many might already know the information required or want to ensure that they aren’t missed when we do our sweep of our database. We have set up a preliminary contact form to allow you to proactively provide our office information and we will aggregate it for future use.


Underused Housing Tax

On 9 June 2022, Canada’s Bill C-8, Economic and Fiscal Update Implementation Act, 2021, received Royal Assent and was enacted. Bill C-8 implements certain measures announced in the federal economic and fiscal update tabled on 14 December 2021, as well as Canada’s new underused housing tax.

The reporting requirements for this new tax include a tax return to be filed by April 30, 2023.

In general, the underused housing tax applies on a calendar year basis (beginning with 2022) to a person who is the owner of residential property in Canada, on December 31 of the particular calendar year.

Residential property generally includes:

– Detached homes and similar buildings with up to three dwelling units (such as a duplex or triplex)

– Semi-detached homes, row-house units, residential condominium units and any other similar premises

If you or an entity that you control owns residential property that is:

– Not your principal residence OR

– Not located in an area of Canada that is not an urban area within either a census metropolitan area or a census agglomeration having 30,000 or more residents AND used personally by the owner (or the owner’s spouse or common-law partner) for at least four weeks in the calendar year OR

– Not rented to a third party, or a non-arms length party for market rent for at least 180 days of the past year OR

– Not under construction,

Then you may have a tax liability equal to 1% of the fair value of the property each year.

Individuals

Citizens or Permanent Residents of Canada who do not meet the above criteria do not have a reporting requirement related to this tax.  Please contact us if anything changes or if you need additional information to determine if this tax might apply to you.

Corporations

If you are a corporation, even if your property is exempt from tax as described above, there is still a reporting requirement that must be met by April 30, 2023.

This means that ANY residential property owned by a corporation MUST be reported whether or not it is fully rented.

For units under construction, reporting requirements will be determined later.

Please complete the form below so we can contact you when the time comes to prepare the return.