Reporting Requirements for Trusts
The legislation to support this measure is included in Bill C-32 which received Royal Assent on December 15, 2022. Bill C-32 changes the effective date of these reporting rules to taxation years ending after December 30, 2023. The CRA will advise you once our system has been updated to receive this information and the applicable forms have been published. As the beneficial ownership reporting requirements are effective for years ending after December 30, 2023, you should file your 2022 T3 as usual.
For trust returns that are required to be filed for the 2021 and subsequent taxation years, Budget 2018 proposes that certain trusts provide additional beneficial ownership information on an annual basis. As a result, these trusts will be required to file an annual T3 return even where one is not currently required.
1. Currently, when does a trust have to file an income tax return?
Generally, a trust has to file an annual income tax (T3) return if the trust has tax payable or it distributes all or part of its income or capital to its beneficiaries.
2. How is the filing requirement changing for trusts?
For 2021 and subsequent taxation years, Budget 2018 proposes that all non-resident trusts that currently have to file a T3 return and express trusts that are resident in Canada, with some exceptions, will have to provide additional information on an annual basis. As a result, for the 2021 and subsequent taxation years, certain trusts will have to file a T3 return where currently they do not have to file a T3 return.
3. Why is this change being made?
This change is being made to improve the collection of beneficial ownership information with respect to trusts and to help the Canada Revenue Agency (the “CRA”) assess the tax liability for trusts and its beneficiaries.
4. What is an express trust?
An express trust is generally a trust created with the settlor's express intent, usually made in writing (as opposed to a resulting or constructive trust, or certain trusts deemed to arise under the provision of a statute).
5. What additional information will have to be provided?
For 2021 and subsequent taxation years, Budget 2018 proposes that all non-resident trusts that currently have to file a T3 return and all express trusts that are resident in Canada, with some exceptions, report the identity of all trustees, beneficiaries and settlors of the trust, along with each person who has the ability (through the trust terms or a related agreement) to exert control or override trustee decisions over the appointment of income or capital of the trust (e.g., a protector).
6. How will the trust provide the additional information?
A trust will have to file a new schedule with its T3 return to report the additional information regarding its beneficial owners, that is, the identity of all trustees, beneficiaries and the settlors of the trust, along with each person who has the ability (through the trust terms or a related agreement), to exert control or override trustee decisions over the appointment of income or capital of the trust (e.g., a protector).
Further information about the new schedule will be posted on Canada.ca when it is available.
7. If the trust has no income to report, can the trust just report the additional beneficial ownership information by filing the new schedule?
No, for 2021 and subsequent taxation years, the trust will have to report the additional information by filing the new schedule along with the T3 return.
8. Which trusts will not have to provide the additional information?
Budget 2018 proposes that the following types of trusts (that are either resident in Canada, or non-resident but required to file a T3 return) are not required to provide additional information:
- mutual fund trusts, segregated funds and master trusts;
- trusts governed by registered plans (i.e., 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;
- trusts that have been in existence for less than three months; and
- 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).
9. What happens if a trust fails to file the T3 return or forgets to provide the additional information?
For 2021 and subsequent taxation years, Budget 2018 proposes that a penalty will apply if a trust that has to file a T3 return fails to do so or fails to provide the additional information about the beneficial ownership.
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. The additional penalty will be 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 penalties in respect of the T3 return will continue to apply.
10. Where can I get more information?
The CRA provides the latest information on the proposed changes on Canada.ca. The taxpayers should check online regularly for updated forms, policies, guidelines, questions and answers, and guidance. You may also refer to the additional information on trusts.
In the meantime, please consult the Department of Finance Canada's Budget 2018 documents for details.
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