Trustees may have additional tax reporting obligations with respect to trusts they manage as of 2023
If you oversee a trust and have not been required to file T3 trust income tax and information returns with the Canada Revenue Agency (CRA) in the past, you should be aware of the new federal reporting rules, which are intended to come into effect in 2023.
The Government of Canada has enacted new legislation requiring trustees of certain trusts to file annual T3 returns with information disclosures. The legislation will impact most Canadian-resident and deemed-resident trusts with taxation years ending after December 30, 2023.
Under old rules, certain trusts were exempt from filing T3 returns with the CRA. These included trusts that did not receive any income, did not dispose of assets, and did not distribute capital to beneficiaries. Examples included:
- Bare trust arrangements
- Trusts that held personal-use real estate assets (e.g., cottage, vacation home); and
- Trusts that held shares of a private company, where dividends were not received and the shares were not disposed of. These structures typically arise as part of estate freezes.
The new rules come amid a growing focus globally on thwarting tax evasion and are designed to boost the transparency of trusts, among other financial structures.
What needs to be disclosed as part of the new trust reporting rules?
The new rules require annual disclosure to the CRA, through the T3 return, of the following details pertaining to all settlors, trustees, beneficiaries, and other persons that can exert control over a trust:
- Date of birth (if an individual)
- Jurisdiction of residence
- Taxpayer identification number (e.g., Social Insurance Number for Canadian individuals)
Are there any exemptions from these rules?
Notable trusts exclusions include:
- Graduated rate estates and qualified disability trusts
- Trusts governed by registered plans (e.g., RRSP, RESP, TFSA)
- Trusts that have been in existence for less than three months
- Trusts that hold less than $50,000 in assets throughout the year, but only if such assets are deposits, government debt obligations, and listed securities
What are the penalties for failure to comply with these rules?
Penalties for failing to file the T3 return start at $25 per day, with a minimum penalty of $100 and a maximum penalty of $2,500. Knowingly failing to file or gross negligence can result in additional penalties of up to 5% of the highest total fair market value of all property held by the trust in the year.
When is the first filing due date under these new rules?
The filing due date of the T3 return for a trust with a December 31, 2023 taxation year end is expected to be March 30, 2024.
Staying “private” will no longer be an option for the majority of trusts. It is important for you to consider your involvement in any trusts and the impact of these new reporting rules.
Contact your Richardson Wealth Advisor
For a more detailed explanation of this topic, contact your Richardson Wealth Advisor to request a copy of our Education Library Article: CRA new trust reporting rules.