CRA indicates that it will not impose penalties for late-filed 2023 bare-trust returns except in extreme circumstances

Absent CRA relief (and ignoring any due diligence defence), a bare trust which fails to timely file a T3 return and Sched. 15 for its 2023 taxation year will be subject to a s. 162(7) penalty of $25 per late-filing day up to a maximum of $2,500, and also might be exposed to a gross negligence penalty 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 trust property.

In a March 12 update to its webpage on bare trust reporting, CRA stated:

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) … 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. …

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 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.

Neal Armstrong. Summaries of CRA Webpage, New reporting requirements for trusts: T3 returns filed for tax years ending after December 30, 2023, updated on 12 March 2024 under s. 162(7), s. 163(5) and s. 150(1.2).