New reporting requirements for trusts in Canada

Bill C-32 received Royal Assent on December 15, 2022, resulting in changes to the reporting requirements for trusts for 2023 and subsequent taxation years.

We have provided a list of frequently asked questions for you to select from, or scroll down to view an expanded view of all questions and answers.

What are the new changes to the filing requirements?
What additional information will have to be provided?
How will affected trusts provide the additional information?
When do affected trusts have to start implementing the new requirements?
If the trust has no income to report, can it just submit the new schedule?
Which trusts will NOT be affected by the new requirements?
What happens if a trust fails to file the T3 or the additional information?

What are the new changes to the filing requirements?

For 2023 and subsequent taxation years, there are two key changes to the reporting requirements for trusts that you should be aware of:

1. Trustees of affected bare trusts must now file an annual T3 return.
2. All non-resident trusts that currently have to file a T3 return, express trusts that are resident in Canada, and bare trusts (with some exceptions) will also have to provide additional information, in addition to their T3, on an annual basis.

As a result of these changes, certain trusts that do not currently have to file a return, will now have to file a T3.

What is a bare trust?

A bare trust exists where a person (the trustee) is merely vested with the legal title to the property held in trust and has no other duty to perform or powers to exercise as trustee, and someone other than the trustee (the beneficiary) carries on the activity that relates to the property.

Common examples of bare trusts include:

• A child, or other person, is added to title of a property to assist with estate planning. The child is the bare trustee, and the parent remains the beneficial owner.
• A child purchased a home, but to obtain bank financing the parent also listed their name as an owner of the property. The parent is the bare trustee, and the child is the beneficial owner.
• A parent opens an In Trust For (ITF) bank account for the benefit of a child. The parent is the bare trustee, and the child is the beneficial owner.

What additional information will have to be provided?

Affected trusts will now have to report:

• the identity of all trustees
• the identity of all beneficiaries
• the identity of settlors of the trust
• each person who has the ability to exert control or override trustee decisions over the appointment of income or capital of the trust (ex. a protector)

How will affected trusts provide the additional information?

A trust will have to file a new schedule along with its T3 return to report the new additional information.

When do affected trusts have to start implementing the new requirements?

The new reporting requirements are applicable to 2023 and subsequent taxation years, therefor, affected trusts will have to start implementing the new requirement for their 2023 return by March 30, 2024.

If the trust has no income to report, can it just submit the new schedule?

No, the trust will have to report the additional information by filing the new schedule along with the T3 return.

Which trusts will NOT be affected by new requirements?

• 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)
• trusts that have been in existence for less than three months
  mutual fund trusts, segregated funds and master trusts
• trusts governed by registered plans (ie. 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)
• lawyers' general trust accounts
• graduated rate estates and qualified disability trusts
• trusts that qualify as non-profit organizations or registered charities

What happens if a trust fails to file the T3 or additional information?

The penalty will be equal to $25 for each day of delinquency, with a minimum penalty of $100 and a maximum penalty of $2,500.

If a failure to file the return was made knowingly, or due to gross negligence, an additional penalty will apply, equal to 5% of the maximum value of property held during the relevant year by the trust, with a minimum penalty of $2,500.

As well, existing T3 penalties will continue to apply.

Questions?

If you have any questions about this article, the reporting requirement for trusts, or any of our related services, please contact one of our estate planning experts or complete the contact form below.