Do the new reporting requirements apply to you?
Are you the trustee of a personal trust, family trust, testamentary estate, or any other type of trust?
Do you own investments or real property on behalf of someone else?
Either held personally or through a corporation, partnership, or other trust.
Are you a Power of Attorney on a bank account for your elderly parents?
Do you own an investment or bank account in trust for a child or grandchild?
Is your name on the title of your child’s home to help them get a mortgage?
Do you hold any assets jointly with your spouse, on which only one spouse is legally named as titleholder?
If you answer yes to one or more questions above, there are new trust reporting requirements that may now apply for 2023 onwards.
Trusts – New Reporting Requirements
On October 27, 2023, the Government of Canada confirmed the introduction of the long-awaited new trust reporting rules, which will come into affect for trusts with taxation years ending on or after December 30, 2023.
Trusts play a vital role in tax and estate planning, offering flexibility, control, and asset protection. They come in diverse forms, each customized to fulfill specific purposes. The change in reporting requirements means that most trusts will need to file a T3 Trust Income Tax and Information Return (“T3 return”) as well as a Schedule 15 Beneficial Ownership Information of a Trust (“Schedule 15”) by the end of March (90 days after its year-end) of every year starting for the 2023 tax year. Due to the new rules, many trusts that were not required to file a T3 in previous years are now required to file.
4 Key Changes to Trust Disclosures
1) Certain trusts will be required to file an annual T3 return even where one is not currently required. Trusts were exempt from filing a T3 in previous years if they did not earn income, sell capital property or issue distributions of income/capital in the year. However, these exemptions will not apply to most trusts going forward. Some examples of trusts which meet the new requirements are:
- “Express” trusts resident in Canada (i.e., family trusts, alter ego trusts, estates which are not Graduated Rate Estates)
- Non-resident trusts
- Certain civil law trusts
2) Bare trust arrangements – trustees of bare trusts will be required to file an annual T3 return for the first time.
3) Additional disclosure requirements. Personal information for all individuals, corporations, partnerships, or trusts which have any involvement with the trust or bare trust must be disclosed on Schedule 15, annually. The following persons will need to be disclosed:
- Settlor
- Trustee
- Beneficiaries
- Any person which may exert influence over trustee decision-making
The following information is required to be reported for all persons involved:
- Name
- Address
- Date of birth (if applicable)
- Country of residence
- Taxpayer identification number (i.e., SIN, business number, trust account number)
4) Penalties. Original late-filing penalties for trusts still apply, however an additional punitive failure to file penalty due to gross negligence may apply to T3 returns filed for 2023 and onwards.
Bare Trust Arrangements
Many Canadians may be unaware that they are a trustee of a bare trust. If a Canadian resident has their name added to the title of a family member’s home or to a relative’s bank account, but only to function as the registered titleholder, they could be deemed to be part of a bare trust, even if they never explicitly set up a trust. Beginning with the December 31, 2023 year end, the trustee of a bare trust must file an annual T3 trust return along with Schedule 15. It should be noted that the new reporting requirements only change the reporting obligation of bare trusts and not the tax treatment of bare trusts.
Additional Information Disclosure
The requirement to report personal information extends to all persons involved in the trust, whether named in the original trust agreement or not. This means any individual, corporation, partnership, or trust with the ability to exert influence over trustee decision-making will need to be disclosed, which may create a long list of persons to be reported on Schedule 15. It will be important to have a complete understanding of the trust’s structure prior to filing for the 2023 taxation year, and it will be important to start gathering the required information as soon as possible.
Penalties
Failure to provide the newly required information will result in penalties of $25 per day of delinquency, with a minimum penalty of $100, and maximum penalty of $2,500. If the failure to file was made knowingly or due to gross negligence, an additional penalty of 5% of the maximum value of property held by the trust during the tax year will apply, with a minimum penalty of $2,500. It should be noted there is no maximum to the possible penalties for gross negligence in failing to report, creating significant risk for trustees who do not provide complete information.
Trusts Exempt from New Reporting Requirements
Some types of trusts may still be exempt from new filing rules, including Graduated Rate Estates, Qualified Disability Trusts, new trusts (in existence for less than three months) or small trusts holding less than $50,000 in assets, however, it is important to consult a tax professional to confirm the requirements for your unique situation.
The deadline for filing of the 2023 T3 return and corresponding Schedule 15 is quickly approaching on March 30, 2024 (April 2, 2024, since March 30th is on a long weekend). It will be important to gather the required information as soon as possible, as the new requirements may be onerous to meet.
For more information or for help filing your 2023 T3 return, the team here at McGovern Hurley LLP is always happy to help.
John Mendis, Tax Advisory and Compliance Partner, jmendis@mcgovernhurley.com
Greg Furyk, Business Advisory and Compliance Partner, gfuryk@mcgovernhurley.com
