Updated November 7, 2022
Under the draft legislation, the new rules will be applicable to taxation years ending on or after December 31, 2023 (note: the previous draft legislation would have applied the new reporting requirements to years ending on or after December 31, 2022). Certain trusts that were previously not required to file a T3 return (such as Bare trusts) will be required to do so under the proposed rules. Also, all trusts that will be obligated to file a T3 return under the new rules will have to include a new schedule to report the identity of various stakeholders.
Who is impacted?
- All non-resident trusts that currently must file a T3 return.
- Express trusts resident in Canada, with some exceptions.
- The draft legislation clarifies that the new reporting requirements would apply to Bare trusts (originally this had been unclear).
The following trusts are excluded from the new rules:
- Mutual fund trusts, segregated funds, and master trusts
- Trusts governed by registered plans
- Lawyers’ and other professionals’ general trust accounts
- Graduated rate estates, qualified disability trusts, employee life and health trusts, and certain government-funded trusts
- Trusts that have been in existence for less than three months
- Trusts that hold less than $50,000 in assets throughout the taxation year (provided their holdings are limited to deposits, government debt obligation and listed securities)
- Trusts that qualify as non-profit organizations or registered charities
- Trusts whose units are all listed on a designated stock exchange
- Cemetery care trusts and trusts governed by eligible funeral arrangements
- Trusts under an employee profit sharing plan
- Trusts under a first home savings account (proposed in Budget 2022)
Under the draft legislation, communications protected by solicitor-client privilege will not be required to be disclosed.
The new rules will increase the number of trusts obligated to file a T3 return, as well as the amount of information that needs to be provided with each T3 return.
What you need to do
Trusts that were not obligated to file a T3 return under the old regime should determine if they are required to do so under the new rules.
All trusts that are required to file T3 returns under the new rules will need to complete a new schedule that contains additional information about the trust.
CRA has not finalized a version of this schedule yet, however it is expected to require identification information for all trustees, beneficiaries, and settlors of the trust (which may include those who have loaned property to the trust), as well as each person who can exert control or override trustee decisions. The additional information requirement will include the name, address, date of birth, jurisdiction of residence, and taxpayer identification number (TIN) for each person identified.
Failure to comply with these requirements will result in significant penalties. If the trust fails to meet the filing timelines, it will be subject to a penalty of $25 per day, with a minimum penalty of $100 and a maximum of $2,500. Moreover, if the trust fails to file—either knowingly or due to gross negligence—the additional penalty will be the greater of $2,500 or 5% of the maximum value of property held during the year.
As of the date of this article, the proposed legislative amendments have not received Royal Assent.
It’s prudent, however, for trustees to start familiarizing themselves with the new rules due to the greater compliance requirements in comparison to prior years. We can help you navigate them - contact your local advisor or reach out to us here.
The information contained herein is prepared by Grant Thornton LLP for information only and is not intended to be either a complete description of any tax issue or the opinion of our firm. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein. You should consult your Grant Thornton LLP advisor to obtain additional details and to discuss whether the information in this article applies to your specific situation.