Under the new trust reporting rules, certain charities and non-profit organizations (NPOs) may be required to annually file T3 Trust Income Tax and Information Returns (T3 return) for their express trusts. The filing would be for taxation years ending on December 31, 2023 or later. It’s important to note that, charities and NPOs may have express trusts when they hold donated funds or property that are subject to restrictions.
Impacted charities and NPOs should prepare now, since gathering the required information will take time and penalties for non-compliance are significant.
When are gifts considered express trusts?
An express trust generally exists when a person (the settlor) intentionally transfers property to a trustee, including through a bequest, to be held and managed for the benefit of one or more persons (the beneficiaries).
A charity or NPO may be considered the trustee of an express trust for any cash or other property received with restrictions on use even if there’s no formal trust agreement. For example, certain scholarship funds, endowments, donor-advised funds, and other special-purpose funds may be express trusts.
Whether an express trust exists is a potentially complex legal question. Charities and NPOs should consider consulting their lawyers in advance for help to identify them.
What are the filing obligations?
Charities and NPOs will need to file separate T3 returns with the CRA for each express trust with a reporting requirement, starting with December 31, 2023 returns due Monday, April 1, 2024 (the first weekday after 90-day deadline). It’s important to note that even if the charity or NPO has an off-calendar year end, their express trusts must use a December 31 tax year end.
There are limited exemptions to the new trust reporting rules. For example, trusts holding less than $50,000 in assets throughout the tax year may be exempt from filing provided their holdings are limited to deposits, government debt obligation, and listed securities.
Trusts required to file T3 returns under the new rules must complete the new T3 Schedule 15 Beneficial ownership information of a trust to report identification information for all trustees, beneficiaries, and settlors of the trust. This may include those who have loaned property to the trust as well as each person who can exert control or override trustee decisions. The required identification information includes name, address, date of birth, jurisdiction of residence, and taxpayer identification number (e.g., Social Insurance Number for an individual).
Please note that express trusts resident in Quebec will also have additional reporting obligations under Quebec’s new trust reporting rules.
What are the non-compliance penalties?
The penalty is $25 per day (minimum $100, maximum penalty of $2,500) for each late-filed trust return. An additional penalty equal to the greater of $2,500 or 5% of the maximum value of the property held during the taxation year by the trust applies where a failure to file, false statement or omission was made knowingly or due to gross negligence.
Charities and NPOs should consider contacting their lawyers now for assistance with determining if they have any express trusts. Gathering the information required under the new trust reporting rules may be onerous, and penalties for non-compliance are significant.
For more information on the new trust reporting rules, contact your local advisor or reach out to us here.
The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.