Canada’s New Reporting Requirements for Trusts

Certain trusts, including bare trusts, that were previously not required to file a trust return, will be required to do so under new reporting rules. Trusts obligated to file, will also need to include a schedule to report beneficial ownership information on various stakeholders.

Why was this enacted?

On December 15, 2022, Bill C-32, Fall Economic Statement Implementation Act, 2022, received royal assent, and outlines filing and information reporting requirements for trusts as well as penalties for non-compliance with these new rules. 

The reporting requirements aim to reduce the potential for taxpayers to engage in aggressive tax avoidance activities relating to trusts.

Who is affected?

  • All non-resident trusts that currently must file T3 Return;
  • Express trusts resident in Canada, with some exceptions; and
  • Bare trusts (1).

Who does this not affect?

The exceptions to the reporting requirements include (2):

  • Trust that have existed for less than three months;
  • Trust holds assets with a total fair market value not exceeding $50,000 throughout the year and the only assets held were cash, government debt obligations, and listed securities (3);
  • Lawyers’ and other professionals’ general trust accounts;
  • Graduated rate estates, qualified disability trusts, employee life and health trusts, and certain government-funded trusts;
  • Trusts that qualify as non-profit organizations or registered charities; and
  • Trusts governed by registered plans (4);

Application of reporting requirements

The trustee of an express trust must file a T3 Return for tax years ending after December 30, 2023 and report beneficial ownership information on Schedule 15 including for all trustees, settlors (5), beneficiaries, controlling persons (6) including:

  • name;
  • address;
  • date of birth (if applicable);
  • country of residence; and
  • Tax Identification Number (7).

Deadline for reporting

The deadline to file is 90-days after the taxation year-end of the trust, with express trusts having a tax year end of December 31, the deadline to file the trust return will be March 31, unless the date is on a weekend or holiday, in which case is extended to the next business day.

Penalties

If a trust fails to file under the new legislation, the late-filing penalty would be $25 per day (with a minimum of $100 and a maximum penalty of $2,500). 

The CRA may, at their discretion, provide penalty relief for the 2023 tax year in situations where the T3 Return and related Schedule 15 for bare trusts are filed after the filing deadline, considering the transition to new legislation in the year.

However, if the failure to file was made knowingly or due to gross negligence, a different penalty may apply equal to the greater of $2,500 and 5% of the maximum value of the property held during the taxation year by the trust.

Next steps

Trustees must familiarize themselves with the new rules due to the heavier burden to report information as compared to prior years where, generally, no tax filing was necessary. These new requirements are complex, and penalties can be significant. 

In many cases, it will take additional time for the trustee to gather information from various parties, particularly, in cases where a bare trust has not filed a T3 return in the past. 

Trustees should apply for a trust account number as soon as possible, providing them with flexibility to electronically file the T3 Return and related Schedule 15. The most efficient way to obtain a trust number is using CRA’s Trust Account Registration online through My Account or My Business Account.

If you would like more information on how these changes may affect you and your trust, please contact a member of our team.

References

(1) A “bare trust” is broadly defined in the Income Tax Act, as an arrangement under which a trust can be reasonably considered to act as an agent for all beneficiaries with respect to all dealings with the trust’s property.

(2) See Subsection 150(1.2).

(3) Additional exceptions including shares of a mutual fund corporation, units of a mutual fund trust, or interests in a related segregated fund.

(4) i.e., Registered Retirement Savings Plans (RRSP), Registered Retirement Income Fund (RRIF), Deferred Profit Sharing Plans (DPSP), Tax-Free Savings Account (TFSA), or First Time Home Savings Account (FHSA), etc.

(5) “Settlor” is defined in subsection 17(15) as “a person … who has loaned property or transferred property, directly or indirectly, in any matter whatever, to a trust for the benefit of the trust …”. For example, if a loan is made at a low interest rate that is less than fair market value to a trust (i.e., non-arms length) the person would be considered a settlor under this definition.

(6) Controlling persons are persons who have the ability, through terms of the trust or a related agreement, to exert influence over trustee decisions regarding the appointment of income or capital of the trust.

(7) i.e., Social Insurance Number, Business Number, Trust Number, or, in the case of a non-resident trust, the identification number assigned by a foreign jurisdiction.

Disclaimer

Our disclaimer, which can be accessed at https://kpcpa.ca/disclaimer/, forms an integral part of and must be read in conjunction with, this guide.