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The government’s new federal trust reporting rules will increase disclosure requirements, affecting a wide range of Canadian trusts. Originally, the federal government introduced significant changes to trust legislation in 2018 to encourage reporting transparency. These rules were amended on Dec. 15, 2022, to help the Canada Revenue Agency (CRA) better assess tax liabilities for both trustees and beneficiaries. These rules will affect trusts in taxation years ending on and after Dec. 30, 2023.
Here’s what you need to know about the new trust reporting rules.
What’s changed? Understanding legislation amendments
The old regulations allowed trust residents in Canada to avoid filing annual T3 income tax returns if tax was not payable by the trust for that year, the trust wasn’t selling any capital property, or the trust earned minimal income.
New regulations will significantly change these exceptions, requiring almost all Canadian personal trusts to file an annual T3 including schedule 15 (we will elaborate later what information is required in this schedule), regardless of whether there’s any income tax liability or whether the trust made any allocations of income during the tax year.
These rules also apply to bare trusts, where the trust acts as an agent for beneficiaries. A bare trust, also known as a simple trust or a nominee trust, is a type of trust arrangement in which the trustee has limited powers, and the beneficiary has the absolute right to both the capital and income of the trust. In a bare trust, the trustee holds the assets on behalf of the beneficiary, but unlike other types of trusts, the trustee has little to no discretion in managing the assets or making decisions regarding distributions.
The type of information required for each filing has changed as well. In the past, T3 filings included limited information about the trust parties. Under the new changes, the CRA is now asking for more information about trustees, beneficiaries, settlors, and anyone with the ability to influence the trustee’s decisions about trust capital. Information includes (to be reported in schedule 15):
- Name
- Address
- Date of birth
- Residence jurisdiction
- Taxpayer identification number (TIN)
Exemptions explained
While exemptions are limited, the following trusts don’t have to file annual T3s:
- Graduated Rate Estate (GRE) – A trust that arises as a consequence of an individual’s death (within 36 month of death) and can qualify for certain graduated tax rates similar to those applicable to individuals.
- New trusts that are less than three months old
- Trusts that have a minimal amount of assets throughout the tax year. Those with a less than fair market value of $50,000 are exempt as long as holdings include only cash, debt obligations, or listed securities. *
- Qualifies as a non-profit organization that is a club, society or association described in paragraph 149(1)(l) or a registered charity.
*For a full list of exemptions, please click here.
What happens if you don’t comply?
While existing penalties still apply, those who don’t properly file on time or submit a false statement or omission could face a penalty equal to the greater of $2,500 or five percent of the highest fair market value of the trust assets’ during the year.
A helping hand
As trusts begin to navigate the changing filing regulations, it’s important to work with a trusted team of tax experts. Zeifmans has decades of experience guiding businesses and individuals through the tax process. To reach out, contact us via email at info@zeifmans.ca or give us a call at 416 256 4000.
