We would like to make you aware that the Canada Revenue Agency had made significant changes to trust reporting requirements. These requirements are much broader in scope, thereby capturing situations that most taxpayers have not traditionally considered.
Effective years ending December 31, 2023 or later, certain trusts are required to file a T3 trust return and include additional information on the roles, responsibilities and beneficiaries of that trust.
Currently, when does a trust return have to be filed?
Generally, a T3 trust return must be filed if the trust is considered non-resident or if it has taxes payable, or if it has income or capital distributions to its beneficiaries.
What is changing?
The requirement to file a T3 trust return is expanding to include all “express” trusts. This means all trusts with a settlor’s (person who establishes the trust) express intent and not created by legal requirement. This might include trusts that are part of corporate structures and situations where one individual is holding any asset “in trust” for another entity or individual (see information on Bare Trusts below). Each of these newly identified trusts will be required to file a T3 trust return and include the additional reporting requirements.
What trusts will not have to disclose this information?
“Listed” trusts are not required to provide additional information, however, may be required to file a T3 return. These include:
- Lawyers’ general trust accounts;
- Graduated rate estates and qualified disability trusts;
- Trusts that qualify as non-profit organizations or registered charities;
- Trusts that have been in existence for less than three months;
- Trusts that hold less than $50,000 in assets throughout the taxation year (provided that their holdings are confined to deposits, government debt obligations and listed securities).
What additional information must be provided?
The identity of all entities involved with the trust needs to be provided, including the settlor, trustees (person(s) who administers the trust) and beneficiaries of the trust. These may be identified and established through the legal trust terms or the trust agreement. Those who fill these positions may be individuals, corporations or any other legal entity that is identified in the trust terms or trust agreement.
How is the information filed with the CRA?
The T3 trust return can be filed electronically with the CRA using a tax accounting software, or it can be filed using the paper filing forms. If filing by paper, the T3 Return must mailed to the CRA with Schedule 15. Multiple copies of Part B, Schedule 15 may be required. Schedule 15 cannot be submitted to the CRA on its own.
When is the T3 Return due and what if I do not file?
Filing for most T3 Trust Returns is due on or before March 31 of each year. Trusts that end on or before December 31, 2023 and qualify for these additional reporting requirements will be required to be filed with the CRA on or before March 31, 2023.
Failure to file a T3 Return for the 2023 taxation year or failure to provide the information required under the new reporting requirements will be subject to a penalty of $25 for each day the T3 Return goes unreported, with a minimum penalty of $1,000 and a maximum of $2,500.
What is Bare Trust?
A bare trust is any trust arrangement where one individual (the trustee) can reasonably be considered to act as an agent for the beneficial owner of property (the beneficiary) and the trustee has no significant powers or responsibilities. The trustee can take no action without instructions from the beneficiary and the trustee’s only function is to hold title to the property to benefit the beneficiary.
Bare trusts are subject to the new reporting requirements and are therefore required to file T3 Returns and Schedule 15 unless it meets one of the exemptions noted above. See the CRA’s Website and guidance regarding bare trusts. Section 3 of this link covers bare trusts and specific information in completing the required forms.
What are common examples of bare trusts?
Some common examples of bare trusts that will be required to file a T3 Return and Schedule 15 will include but are not limited to:
- Have you co-signed for someone else to purchase any type of property (home, cottage, business, auto)?
- Have you been added to a property to avoid probate delays?
- Do you have a bank account in your name, and that bank account is used exclusively by a partnership or corporation?
- Do you hold legal title to property on behalf of another owner or group of owners for simplicity in structure/ownership or to minimize land transfer fees?
- Did you gift property to a minor child who cannot yet hold legal title?
If you find yourself in one of these common scenarios or wondering if your personal situation qualifies under these new reporting rules to file a trust return, or for more information, contact our office or visit the CRA’s Website.