31 March 2024

CRA Clarifies Penalty Relief For Bare Trusts

WeirFoulds LLP


WeirFoulds LLP has established itself as one of Canada’s premier regional law firms and has provided strategic, cost-effective and innovative legal advice to our clients since 1860. We partner with our clients to offer full access to our business acumen and insights in four broad areas of practice: (1) Corporate; (2) Litigation; (3) Property; and (4) Government.
Bare trusts, unless specifically exempted, are required to file a 2023 T3 Return on or before April 2, 2024 with a completed T3 Schedule 15 to report beneficial ownership information.
Canada Corporate/Commercial Law
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Bare trusts, unless specifically exempted, are required to file a 2023 T3 Return on or before April 2, 2024 with a completed T3 Schedule 15 to report beneficial ownership information. For more details, please see our prior publication on the subject accessible here.

Earlier this month, the Canada Revenue Agency ("CRA") updated its guidance (the "Guidance") (accessible here) with respect to the waiver of late-filing penalties for bare trusts stating that such penalties will be waived 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."

The Guidance also states that gross negligence penalties will be subject to oversight and approval by Headquarters and will only be applied "in the most egregious cases where a bare trust fails to file" and "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." The gross negligence penalties can be severe being 5% of the highest amount at any time in the year of the fair market value of all properties held by the trust with a minimum penalty of $2,500.

Although the CRA is not bound by law to follow its administrative positions, the Guidance provides comfort that the CRA will almost certainly not apply any late-filing penalties provided the return is filed prior to a "compliance action" such as an audit or demand to file. As the timing of a CRA compliance action is out of the control and unknown to taxpayers, taxpayers should file their returns by the deadline (or, failing that, as soon as possible thereafter).

Even if the returns are filed after a compliance action, taxpayers will be able to argue that their situation is not a "most egregious case" that warrants gross negligence penalties according to the Guidance. We suspect that relevant factors that the CRA will consider in making this determination will include, among other possible factors, the sophistication of the taxpayer (and/or its advisors), whether the taxpayer was aware of the filing requirement, and the role of the bare trust in a tax plan (e.g., whether the taxpayer may have been seeking a tactical or other advantage by avoiding or delaying disclosure of information to the CRA).

What is Gross Negligence

Gross negligence is not defined in the Income Tax Act (Canada). In general, gross negligence may attach to conduct, whether an act or a failure to act, that (a) is tantamount to intentional conduct, (b) shows an indifference as to whether the Act is complied with, or (c) shows a wilful, reckless or wanton disregard of the law.

Other Penalties

It is important to note that the CRA's relief as provided for in the Guidance is limited to late-filing penalties and does not extend to other penalties such as those that are applicable where a taxpayer makes a false statement or omission in the T3 return and Schedule 15. Accordingly, trusts with reporting obligations should also ensure that all required information is reported correctly including for all beneficiaries, trustees, settlers, and protectors.

If you would like to learn more about the Tax services that WeirFoulds offers, please visit our Tax Practice Group page. If you have any questions about the the CRA's new guidance on bare trusts reporting obligations, please contact Ryan Morris at

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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