New trust reporting rules coming into effect on Dec. 31, 2023 year ends
Since the tabling of Budget 2018, the federal government has been working on expanding tax reporting rules for trusts. The expansion to the trust reporting rules comes in two parts – i) more trusts will be required to file an annual return; ii) additional disclosure will be required in those filed returns. These changes apply to taxation years ending after Dec. 30, 2022.
Who is required to report
Currently, trusts are only required to file a T3 tax return for the taxation years where the trust:
- has Part I tax payable,
- is a Canadian resident trust who has a taxable capital gain or disposed of capital property in the year,
- is a non-resident trust who, except for excluded dispositions, has a taxable capital gain or disposed of Canadian capital property in the year, or;
- Meets another criterion listed in the Canada Revenue Agency’s 2023 T3 Trust Guide
The new rules require Canadian resident express trust, or for civil law purposes, a trust other than a trust that is established by law or by judgement, to file a T3 return regardless of whether or not they meet the criteria above. Exempted from this new requirement are listed trusts, which include:
- Trusts in existence for less than three months during the year.
- Trusts who hold less than $50,000 in certain assets, including money or shares of a publicly traded company, throughout a year,
- General trust accounts for legal practitioners and;
- Non-profit organizations and graduated rate estates.
The listed trusts will still be required to file a T3 return where they meet the criteria mentioned above.
Additionally, these new rules introduce a filing requirement for bare trusts which are effectively arrangements where the trust is acting as an agent of the trust beneficiaries in respect of the trust property. For more information on the bare trust reporting requirements, please see our article Bare trust arrangements and the new trust reporting regime in Canada.
New Information
All trusts, except listed trusts, who are required to file a return will now be required to file a new schedule with their T3 return. This schedule will set out identifying information such as the name, address, jurisdiction of residence and taxpayer identification number of each trustee, beneficiary, settlor and person who has the ability to exert influence over the trustees’ decisions regarding the appointment of income or capital of the trust.
The new rules acknowledge the trust may not have information on every beneficiary of the trust. The trust is required to provide the required information on each beneficiary who is known or ascertainable with reasonable effort. For beneficiaries who cannot be ascertained, the trust is to provide sufficiently detailed information to determine whether a particular person is a beneficiary of the trust. Certain trusts with Indigenous beneficiaries or that have units listed on a designated stock exchange will have fewer disclosure requirements relating to beneficiaries.
Penalties
Failure to file a required return by the deadline will incur a penalty of $25 dollars a day, with a minimum penalty of $100 and a maximum penalty of $2,500.
A newly proposed penalty will make a person or partnership liable to pay a penalty if the person or partnership:
a) Fails to comply with a demand to file a return.
b) Makes or acquiesces to a false statement or omission on a trust return or fails to file a trust return either knowingly or in circumstances amounting to gross negligence or
The penalty will be equal to the greater of $2,500 and 5% of the highest fair market value of the property held by the trust during the year.