New Reporting Requirements for Trusts - It’s Time To File
UPDATE - This is an update of our October 23, 2022 blog post: New Reporting Requirements for Trusts - Are You Ready?
In the 2018 Budget, new reporting requirements for trusts were made as part of Canada’s international commitment to the transparency of beneficial ownership information and efforts to ensure the effectiveness and integrity of the Canadian tax system. Some trusts that were not previously required to file a T3 Trust Return are now required to do so and all trusts filing a T3 Trust Return will be required to provide additional information. Further, arrangements that are not even trusts, such as “bare trusts” are now caught, with some limited exceptions.
Applies to More Than Just Trusts
We highlight that these new reporting rules apply to more than just trusts under the Tax Act. A trust for this purpose includes an arrangement under which the trust can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings of the trust’s property. These arrangements are generally known as “bare trusts” and are very common. Some examples include a corporation that owns legal title but not beneficial ownership of property and bank/investment account where the beneficial owner has added another person’s name to facilitate bank payments/estate planning.
These new reporting requirements for trusts come into effect for tax years ending on and after December 31, 2022 with the first due date being April 2, 2024 (due to the holiday). We note that the government has waived penalties that would otherwise apply for 2023 returns filed late. With the uncertainty around whether these rules apply, we would not be surprised if many taxpayers choose to file the return late in hopes that the government provides better clarity, or better yet, alleviates situations that seem to needlessly increase compliance burden and costs for many Canadians.
Potentially Hefty Penalties
Penalties for failing to comply with the reporting requirements can potentially be hefty. A penalty of $25 per day of delinquency with a minimum penalty of $100 and maximum of $2,500 will apply. If a failure to file the return was made knowingly, or due to gross negligence, an additional penalty of 5% of the maximum fair market value of property held during the relevant year by the trust will apply. In the case of this latter penalty, a minimum penalty of $2,500 will apply.
The CRA has updated its T3 Trust Guide to help taxpayers determine the types of arrangements that are now required to file the T3 Trust returns ( T3 Trust Guide – 2023 - Canada.ca).
If you are unsure if your trust falls into the new reporting requirements, reach out to one of our team. We’d be happy to help review your trust and help you prepare for the new requirements.
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