The Canada Revenue Agency (CRA) has announced new reporting requirements for many trust returns, applicable annually for tax years ending on or after December 31, 2023.
Current Rules for Trust Reporting
Under current rules, a trust must generally file a T3 return for a tax year if the trust:
- has tax to pay for the year
- disposes of a capital property, or
- distributes all or part of its income or capital to its beneficiaries.
The return must be filed within 90 days after the end of the trust’s tax year. No T3 return is currently required from trusts that are inactive or have no income or tax payable. In addition, trusts that are required to file a T3 return do not have to identify all of the trust’s beneficiaries.
New Rules for Trust Reporting
The new reporting requirements apply to all trusts filing a T3 return, except:
- Trusts that are registered charities,
- Graduated rate estates (i.e. estate filings for individuals who have passed away in the preceding three years),
- Qualified disability trusts,
- Trusts that have existed for less than three months, and
- Trusts that hold assets worth less than $50,000, but only if those assets are held in:
- Certain debt obligations,
- Shares, debt obligations, or rights listed on a designated stock exchange,
- Mutual funds, or
- Interest in a related segregated fund.
If your trust does not meet one of these exceptions, it is likely impacted by the new reporting requirements. If you have an inactive trust in your corporate organization, now may be the time to dissolve it so you are not caught by these new rules.
Trusts that fall under the new rules would have to file a trust return and report information regarding “reportable entities”, which include all trustees, beneficiaries, settlors, or anyone else who can either exert control or override trustee decisions over the appointment of income or capital of the trust (ex. a protector).
The additional information to be reported for each reportable entity (trustee, beneficiary, settlor) includes:
- Type and classification of entity (trustee, beneficiary, settlor)
- Date of birth
- Country of residence
- Taxpayer identification numbers, such as social insurance number, trust account number, business number or taxpayer identification number used in a foreign jurisdiction.
Under these rules, beneficiaries include persons who currently have a right to income or capital, as well as those having residual or contingent interests. As a result, some beneficiaries might not know that they have an interest in the trust, which could cause issues when collecting information from them.
When identifying the settlors, keep in mind that the proposed rules use the definition in subsection 17(15) of the Income Tax Act, which includes both the legal settlor and any persons who transfer property to the trust (except commercial loans and transfers for value by an arm’s length person).
Penalties for not Filing a T3 Return
The current penalty for not filing a T3 return when required will continue to apply. It will also apply if the required additional information is not included in the return. The penalty is $25 for each day late, with a minimum penalty of $100 and a maximum of $2,500.
The new rules also impose a significant additional gross negligence penalty where a failure to file the return was made knowingly or due to gross negligence. The additional penalty would be five percent of the maximum value of property held by the trust during the relevant year, with a minimum penalty of $2,500. This penalty would also apply to false statements and omissions amounting to gross negligence as well as a failure to respond to a CRA demand to file.
Contact McCay Duff LLP in Ottawa for a Detailed Understanding of the New Trust Reporting Requirements
At McCay Duff LLP, our trusted team of Chartered Professional Accountants provides high-quality tax and business advisory services to Ottawa and surrounding area businesses. In addition to helping corporations maximize profitability and minimize taxes while remaining compliant, we provide expert tax planning and preparation services. If you need assistance determining your corporate income tax instalment payment amounts, contact us online or by telephone at 613-236-2367 or toll-free at 1-800-267-6551.