New Trust Reporting Requirements
Last updated – February 7, 2024
The federal government has made some significant changes to the reporting requirements for trusts in Canada that have a taxation year that ends after December 30, 2023 (i.e. December 31, 2023 or later). The main areas of change are as follows:
- All trusts, unless certain conditions are met, will be required to file an annual T3 Return with the CRA.
- Trusts that were already required to file a T3 Return will generally be required to provide significantly more information to the CRA.
- Bare trusts are subject to the new reporting requirements.
The filing deadline for trusts with a tax year of December 31, 2023 is April 2, 2024. Failure to understand your filing requirements could result in significant late-filing or negligence penalties.
We recommend that you review the new trust reporting requirements below in detail and contact us to discuss them in more detail if you need assistance.
Bare Trusts
See our update on April 4th regarding 2023 filing
A “bare trust” is a relationship where one person (the agent) holds title to the property in their name for the benefit of another person (the beneficial owner). The beneficial owner controls the property and has all of the rights and obligations related to the property.
Prior to 2023, bare trusts were not required to file a T3 return because they were not considered a trust for tax purposes.
Under the new rules, a bare trust now exists as a trust for tax filing requirements.
The result is that bare trust relationships that did not have a T3 reporting requirement in prior years will now have to file a T3 return.
Examples of bare trust relationships now required to file a T3 return:
- A daughter has her parents on legal title for her home for financing purposes. The daughter is the beneficial owner of the property, her parents simply hold legal title. A T3 return will now be required to be filed for this bare trust relationship, where in prior years no filing was required.
- A corporation holds legal title to a property and another corporation is the beneficial owner of the property. This arrangement is common in the real estate industry. Both corporations already file T2 corporate tax returns, but now a T3 trust return will also need to be filed.
- An adult son is added to his aging dad’s bank account so he can help with day-to-day expenses of his dad while the dad is away. The bank account is still beneficially held by the dad, but now the son is an agent acting for his dad on the account for convenience. A T3 return will be required to be filed.
- A lawyer’s general trust account is exempt from the new trust reporting rules, but specific lawyer’s trust accounts are not exempt.
The CRA published new guidance in December 2023 with respect to the new trust reporting requirements that stated they would waive the late-filing penalty for bare trusts that do not file their 2023 T3 returns on time. However, the CRA also stated that they would not waive gross negligence penalties where a failure to file was made knowingly.
We highly recommend that you disclose all bare trust relationships to us so that T3 return filing requirements can be done on time.
Increased disclosure requirements
Under the new rules, a trust must now provide additional information on Schedule 15 of the T3 return, which includes the name, address, date of birth, residency for tax purposes, and taxpayer ID (SIN, BN, etc) for the following people:
- Trustees
- Beneficiaries
- Settlors of the trust (a settlor is separately defined for these purposes and may include more than the legal settlor)
- Any person that may exert influence over the trustees under the trust terms with respect to allocations of income or capital
- Information about any beneficiaries that cannot be listed by name (i.e. not born yet)
The new rules apply to almost all trusts, but there are exemptions for “listed trusts”, which include:
- A trust in existence for less than three months.
- A trust that holds assets with a total fair market value that does not exceed $50,000 throughout the year, if the only assets are cash and/or stocks on a designated stock exchange (and a few other similar investments).
- Lawyer’s general trust accounts or similar accounts required under relevant rules of professional conduct under the laws of Canada or a province.
- A registered charity, club, society or certain associations.
- Registered accounts, such as RRSP, RRIF, RESP, RPP, TFSA, and other similar accounts.
- There are a few other exemptions that could apply, but the above noted are the most common.
Listed trusts will still need to file a T3 return if, in a certain year, any of the following applies:
- Trust had taxes payable for a year.
- Trust disposed of capital property and realized a taxable capital gain.
- Trust was a deemed resident trust.
Next steps
- Talk to us about any potential bare trusts or express trusts that do not already have a filing requirement so we can help you meet the new trust reporting requirements.
- Be prepared to provide more information to your accountant this year when T3 returns are being prepared. A trustee must make a good faith effort to obtain the required information and, if not able to obtain the information, keep supporting documentation that an effort was made to obtain the information.
