Federal Budget 2023 is being released today.
Watch! Life in the Tax Lane - April 2024
This FREE 10-minute video for Canadian Tax Professionals includes rapid-fire discussion of select recent developments in the wonderful world of Canadian tax presented by the Video Tax News Team.
Topics:
* Late Breaking - Bare Trust Reporting Exemption!
On March 28, 2024 (after this episode of Life in the Tax Lane was recorded), CRA announced that bare trusts would be exempt from trust reporting requirements for 2023. CRA stated:
“To support ongoing efforts to ensure the effectiveness and integrity of Canada’s tax system, the Government of Canada introduced new reporting requirements for trusts.
In recognition that the new reporting requirements for bare trusts have had an unintended impact on Canadians, the Canada Revenue Agency (CRA) will not require bare trusts to file a T3 Income Tax and Information Return (T3 return), including Schedule 15 (Beneficial Ownership Information of a Trust), for the 2023 tax year, unless the CRA makes a direct request for these filings.
Over the coming months, the CRA will work with the Department of Finance to further clarify its guidance on this filing requirement. The CRA will communicate with Canadians as further information becomes available.”
For more information, see CRA’s Tax Tip .
Life in the Tax Lane is for general information purposes only and deals with dynamic, time-sensitive and complex matters that may not apply to particular facts and circumstances. The information provided should not be relied upon as a substitute for specialized professional advice in connection with any particular matter. For more information visit videotax.com/disclaimer. ©Video Tax News Inc. 2024, All Rights Reserved.
Exposure to UHT Tool Updated
CRA’s decision tree that assists individuals and entities in determining whether they have Underused Housing Tax (UHT) filing exposure (Who must file a return and pay the tax) was recently updated to incorporate the proposed changes affecting 2023 filings.
For more information on this, see the comments from CPA Canada’s VP of Tax, John Oakey.
T3 filings: updated guidance on relief
Many practitioners have been addressing the challenges of the new trust reporting requirements, especially as they have imposed filing requirements on a vast array of arrangements commonly described as “bare trusts”. While CRA had indicated that there would be some penalty relief for bare trusts, the phrasing was not very comforting for many advisors.
On March 12, 2024, CRA updated Questions 3.5 and 3.6 on their FAQ webpage New reporting requirements for trusts: T3 returns filed for tax years ending after December 30, 2023.
The exact text of CRA’s Questions 3.5 and 3.6, on this penalty relief, is reprinted below.
3.5. Will the CRA provide any relief for penalties if a bare trust does not file their 2023 T3 Return and Schedule 15 by the filing deadline as required?
As some bare trusts may be uncertain about the new requirements, the CRA is adopting an education-first approach to compliance and providing relief to bare trusts by waiving the penalty payable under subsection 162(7) of the Income Tax Act for the 2023 tax year in situations where the T3 Return and Schedule 15 are filed after the filing deadline for reasons other than gross negligence. For the 2023 tax year, where the tax year of the trust ends on December 31, 2023, the filing deadline of March 30, 2024, is extended to April 2, 2024, the first business day after the deadline.
This proactive relief is for bare trusts only and only for the 2023 tax year.
While the Act also includes a gross negligence penalty under subsection 163(5), as part of the CRA’s education-first approach, the CRA will only apply this penalty in the most egregious cases where a bare trust fails to file. Imposing such a penalty would only occur in the context of a compliance action, such as an audit, where all factors and circumstances of the taxpayer’s particular situation are considered together. A gross negligence penalty for failing to file will be subject to oversight and approval by Headquarters, following a mandatory referral.
Under the Act, the gross negligence penalty is equal to the greater of $2,500 and 5% of the highest amount at any time in the year of the fair market value of all the property held by the trust.
3.6. Why is the relief of penalties for the 2023 filing year only applicable to bare trusts?
Bare trusts did not have an obligation in years prior to the 2023 tax year to file a T3 Return, and the CRA recognizes that the 2023 tax year will be the first time that bare trusts will have a requirement to file a T3 Return including the new Schedule 15.
Thank you to the tax team at CPA Canada for their ongoing efforts in addressing the need for a broader statement on penalty relief with CRA.
Watch! Life in the Tax Lane - March 2024
Life in the Tax Lane is for general information purposes only and deals with dynamic, time-sensitive and complex matters that may not apply to particular facts and circumstances. The information provided should not be relied upon as a substitute for specialized professional advice in connection with any particular matter. For more information visit videotax.com/disclaimer. ©Video Tax News Inc. 2024, All Rights Reserved.