Historically, trusts with no activity throughout the year and no income tax payable have not been required to file a T3 Trust return. However, commencing with taxation years ending after December 30, 2023, these exemptions will no longer be applicable for certain Canadian-resident and non-resident trusts.
For taxation years ending on or after December 31, 2023, new reporting rules will require most trusts, including bare trusts (exceptions noted below) to disclose information in respect of each settlor, trustee, beneficiary and individual who has the ability to exert influence over trustee decisions (i.e. a controlling person or protector) regarding the appointment of income or capital of the trust in the year. The required information is:
- Name
- Address
- Date of birth (for individuals)
- Jurisdiction of residence for tax purposes
- Taxpayer identification number (TIN) which includes a social insurance number (SIN), a business number (BN), temporary tax number (TTN), trust account number (TN), individual tax number (ITN) and for a jurisdiction other than Canada, a TIN used in that jurisdiction to identify an individual or entity.
The new disclosure requirements will extend to encompass non-resident trusts currently required to file a T3 return, “express trusts” (typically those created by a settlor during their lifetime or specified in a will), certain civil law trusts, and “bare trust” arrangements (also known as “naked” or “simple” trusts).
Bare Trusts
Corporate bare trustees are required to file a nil corporate income tax return and a trust return under the new rules. Bare trust arrangements are defined under the new legislation as “an arrangement where a trust can reasonably be considered to act as an agent for its beneficiaries with respect to all dealings in all of the trust’s property.” This definition, known for its broad scope, is expected to receive practical application guidelines from the Canada Revenue Agency (“CRA”) to guide bare trustees in achieving compliance with these new rules. For context, bare trusts are used in various personal and commercial situations and may include the following examples:
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Used to hold title for property in joint ventures, partnerships, etc.
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Used to avoid probate taxes where a son or daughter or sibling holds title of a property for a parent, etc.
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Used where a family trust has beneficial ownership of a property or cottage.
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Used for privacy purposes by a developer such that a corporate entity holds legal title, while developer retains beneficial ownership.
Collection of Required Information
For many trusts, the 2023 taxation year may mark the first instance where these trusts are mandated to file trust returns. Trustees of trusts subject to the newly established regulations will need to collect and disclose additional information as outlined above. Given the substantial nature of these new filing requirements, trustees are advised to proactively prepare in advance of the deadline and ensure the gathering of all necessary information. Note that trusts that were wound up in 2023 will still have to gather and report required trust information in a T3 return for its final year, as the end of its taxation year will be December 31, 2023, making it subject to the new reporting rules
In addition, “in trust” bank accounts or brokerage accounts (eg: accounts set up for your children or grandchildren) can be subject to these new reporting rules if none of the exceptions below apply.
Notable Exceptions
The following trusts continue to be exempt from filing T3 returns and the new additional information disclosures if certain conditions are met (i.e., no income tax payable, no taxable capital gains and no dispositions of capital property in the year):
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Trusts that have been in existence for less than 3 months;
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Trusts that hold assets with a maximum fair market value of $50,000 throughout the year (these assets are limited to deposits, government debt obligations and listed securities);
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Certain regulated trust accounts, such as lawyer’s general trust accounts (but not accounts held on behalf of a specific client);
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Trusts that qualify as non-profit organizations or registered charities;
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Certain internal trusts involving registered charities, such as endowment funds and donor-advised funds;
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Mutual fund trusts, segregated funds and master trusts;
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Trusts, all the units of which are listed on a designated stock exchange;
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Graduated rate estates;
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Qualified disability trusts;
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Employee life and health trusts;
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Certain government funded trusts;
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Trusts governed by certain plans (including 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, supplementary unemployment benefit plans, tax-free savings accounts, employee profit sharing plans or first home savings accounts); and
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Cemetery care trusts and trusts governed by eligible funeral arrangements.
Penalties for Trusts on Non-compliance
For the taxation year ending December 31, 2023, the T3 return including the new disclosure requirements is due on or before April 2, 2024.
Trusts that do not comply with the new requirements may be subject to significant penalties.
Failure to file by the deadline results in a penalty equal to the greater of $100 and $25 per day to a maximum of $2,500.CRA has indicated that it will waive this penalty for bare trusts whose 2023 trust return is filed after the deadline.
If the responsible person knowingly or under circumstances amounting to gross negligence fails to file the trust return, a more severe penalty can apply. This penalty is the greater of $2,500 and 5% of the highest amount, at any time in the year, of the total fair market value of all the property held by the trust in the year.
If you have any questions about the new trust reporting requirements, please contact your SLF advisor.