The Canada Revenue Agency (CRA) has introduced significant changes to the reporting requirements for trusts. If you are a trustee, settlor, beneficiary, or controlling person of a trust, it is important for you to understand the new changes, their implication and exposure to penalties due to late filing or providing incomplete or inaccurate information.
What are the new reporting requirements for trusts?
Starting from tax years ending after December 30, 2023, all trusts, unless specific conditions are met, must file an annual T3 Trust Income Tax and Information Return (T3 Return) and a Schedule 15 – Beneficial Ownership Information of a Trust (Schedule 15) with the CRA. This means that many trusts that did not have to file a T3 Return before will now have to do so, including bare trusts.
Schedule 15 will require the trust to provide detailed information on all reportable entities, such as trustees, settlors, beneficiaries, and controlling persons. This information includes their names, addresses, dates of birth, tax identification numbers, and their relationship to the trust.
Which trusts are affected by the new reporting requirements?
The new reporting requirements apply to all express trusts that are resident in Canada or deemed resident in Canada for tax purposes. An express trust is a trust created with the settlor’s express intent, usually made in writing (as opposed to a resulting or constructive trust).
Some trusts are exempt from the new reporting requirements, for example: Registered plans, Qualified disability trusts, Graduated rate estates, Mutual fund trusts, Trusts governed by registered charities or non-profit organizations, Trusts that have been in existence for less than three months, Trusts that hold less than $50,000 in assets throughout the year (provided that their holdings are confined to deposits, government debt obligations and listed securities), Trusts that are non-resident throughout the year.
Additionally, bare trusts are now required to file an annual T3 Return and Schedule 15.
What is a bare trust and how is it affected by the new reporting requirements?
A bare trust is a trust where the trustee has no powers or discretion and simply holds legal title to the trust property for the benefit of the beneficiary. The beneficiary has full control over the trust property and can direct the trustee on how to deal with it.
Before the new reporting requirements, a bare trust was generally not required to file a T3 Return unless it earned income or made distributions in a year. However, starting from tax years ending after December 30, 2023, a bare trust will be required to file a T3 Return and a Schedule 15 unless it meets one of the exemptions listed above.
When do the new reporting requirements take effect?
The new reporting requirements apply for tax years ending after December 30, 2023. This means that if your trust has a calendar year end, you will have to file your first T3 Return and Schedule 15 by March 30, 2024 (or April 2, 2024, if March 30 falls on a weekend).
When is a T3 Return due?
To file a T3 Return and, you will need to have a trust account number from the CRA. You can obtain your trust account number instantly using the Trust Account Registration services, available online.
The deadline for filing your T3 Return is 90 days after the end of your trust’s tax year. For most trusts, this will be March 31 of the following year.
What are the penalties for not filing or providing incomplete information?
If a trust fails to file a T3 Return or Schedule 15 by the due date, or provides incomplete or inaccurate information on Schedule 15, it may be subject to penalties and interest. The penalty for failing to file a T3 Return is $25 per day (minimum $100 and maximum $2,500). The penalty for failing to file Schedule 15 or providing false or misleading information on Schedule 15 is $25 per day (minimum $100 and maximum $25,000).
If the failure to file or provide information is done knowingly or due to gross negligence, an additional penalty of 5% of the maximum fair market value of the trust property may apply.
How can you prepare for the new reporting requirements?
If you are involved with a trust that may be affected by the new reporting requirements, you should start gathering the necessary information on all reportable entities as soon as possible. You should also review your trust agreement and ensure that it reflects your current intentions and objectives. You may want to consult with a professional advisor to help you understand your tax obligations and plan accordingly.
For more information on the new reporting requirements for trusts, please do not hesitate to contact us.