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Sheryne Mecklai

Sheryne Mecklai

Tax Partner at Manning Elliott Vancouver
by Sheryne Mecklai
December 15, 2023

Update to Trust Reporting Requirements

Background

The 2018 budget introduced enhanced trust reporting requirements (see New Trust Reporting Requirements | Manning Elliott LLP) which have been updated with impacts to the 2023 taxation year. Most of the rules from 2018 stayed the same but there are some differences. This blog is to provide a summary of the current rules which are now enacted into legislation and will take effect for trusts in Canada for 2023.

This new reporting obligation will be required for most trusts for taxation years ending after December 30, 2023. In addition to filing a Trust tax return, a new schedule will need to be included for trusts that are required to file.

These returns are due 90 days after the trust’s fiscal year end.

Types of trusts that are required to file:

A trust that has taxes payablei, has had a capital gain or disposed of capital property will continue to have to file a Canadian Trust returnii.

Canadian resident trusts that meet one of the following exemptionsiii do not need to file a Canadian Trust return:

  • A mutual fund trust, a segregated fund or a prescribed master trust;
  • A trust governed by registered plansiv;
  • A trust created where funds are held as required under rules of professional conduct or the laws of Canada or a province which are held for a regulated activity but not held for a particular client or clients– such as a lawyer’s general trust account;
  • A graduated rate estate or qualified disability trust;
  • A trust that qualifies as non-profit organizations or registered charities;
  • A trust that has been in existence for less than three months; or
  • A trust that holds less than $50,000 in assets throughout the taxation year provided that their holdings are confined to deposits (money), government debt obligations and listed securities only (i.e. trusts set up with anything other than these assets would not qualify).

In general, most trusts will now need to file a T3 return and also provide the additional information required by legislation unless it meets the specific exemption criteria noted above.

Additional Information requested

In addition to filing a trust return, trusts will also need to provide the following details, for each trustee, beneficiary, settlor and any person/entity with the ability to exert influence over trustee decisions (i.e. override trustee decisions over the appointment of income or capital of the trust):

  • Name
  • Address
  • Date of birth
  • Residence (for tax purposes)
  • Social Insurance Number/Business Number/Trust account number/Foreign taxpayer Identification number

Penalties

T3 returns are due 90 days after the year end of the trust (normally March 30th or March 31st of the following year). A late filing penalty has and will continue to apply to trusts which are not filed by 90 days after the trust’s year endv.

The new rules also include an additional penalty equal to 5% of the maximum value of the property held by the trust, with a minimum penalty of $2,500, for those who fail to file a trust tax return or make a false statement or omission in the trust return, either knowingly or due to gross negligence.

Summary:

These new reporting requirements will result in:

  • Trusts that already file T3 returns will be required to disclose significant additional information.
  • Certain trusts that did not have to file a T3 return before will now have to get a trust account number, file returns and disclose significant additional information. For example:
    • A family trust which held shares of a private corporation but did not receive any income
    • Bare trustsvi including “In Trust” bank accounts and real property arrangements where the person on title is not the same as the person who benefits from the property.

Further information

Additional information about the reporting requirements can be obtained here and in the T3 Trust Guide 2023 when it is updated by the CRA.


iUnder Part I of the Income Tax Act
iiThe rules are essentially the same for resident and non-resident trusts
iiiThere are other exceptions outlined in subsection 150(1.2) of the Income Tax Act
ivSuch as deferred profit sharing plans, pooled registered pension plans, registered disability savings plans, registered education savings plans, registered pension plans, registered retirement income funds, registered retirement savings plans, registered supplementary unemployment benefit plans and tax free savings accounts.
vCRA has stated that it will provide administrative relief to waive the late filing penalty for bare trusts for the 2023 year but the gross negligence penalty could still apply.
viA bare trust is an agreement where the legal title owner of the property is not the same as the beneficial owner.