(New Tax Filing Obligations for Bare Trusts and other Trusts)

The Canada Revenue Agency (CRA) has implemented significant changes to trust reporting rules for taxation years ending after December 30, 2023. It is imperative to understand and comply with these modifications to ensure compliance and avoid potential penalties.

Under the revised legislation, most trusts will be required to file an annual T3 Trust Income Tax and Information Return for tax years ending on or after December 31, 2023. This requirement applies even to trusts that have never filed before.

Previously, under the old rules, a trust had to file a T3 return for a tax year if it met any of the following conditions: it had tax to pay for the year, disposed of a capital property, or distributed all or part of its income or capital to its beneficiaries. However, with the new regime, trust returns will need to be filed in situations where filing was not required in the past. This includes trusts that do not have income or dispositions of property, as well as bare trust arrangements that are deemed to be subject to the rules.

Key Points Regarding the New Trust Reporting Requirements:

  1. Mandatory T3 Returns and Exemptions: Almost all trusts are now obligated to file an annual T3 Return, unless specific conditions are met. Listed trusts, as defined in paragraphs 150(1.2) (a) to (o) of the Income Tax Act, enjoy certain exemptions. This includes trusts in existence for less than three months at the end of the year, trusts holding assets valued at less than $50,000, registered charities, certain trusts under specific regulations, and more. Bare trusts are now subject to the new reporting rules.
  2. Trust Account Number: Bare trusts and other trusts that have never filed before will need to apply for a trust account number required for electronic filing.
  3. Reporting for Trusts with No Income: Even if a trust has no income to report, it must file Schedule 15 if required to file a T3 Return.
  4. Reporting for Bare Trusts: Bare trusts are subject to the new reporting rules, with relief for penalties provided for the 2023 tax year.
  5. Beneficial Ownership Disclosure: Trusts filing a T3 Return must provide beneficial ownership information on Schedule 15, including details such as name, address, and Tax Identification Number for trustees, settlors, beneficiaries, and controlling persons.
  6. Penalties for Non-compliance: Failure to file an annual T3 Return may result in penalties, including penalties for knowingly making false statements or omissions on the return.
  7. Filing Deadlines: Timely filing is crucial.For the 2023 tax year, where the tax year of the trust ends on December 31, 2023, the 90-day filing deadline of March 30, 2024, is extended to April 2, 2024, the first business day after the deadline.

If you are a trustee, to ensure that you remain compliant with the latest legislation, we strongly advise you to reach out to your accountant or tax advisor. They will be able to provide guidance and assist you in filing any necessary returns or documents to adhere to the new rules effectively.

Should you have any questions or require further clarification regarding these filing rules or their implications for your trust, please do not hesitate to contact us. We are here to provide assistance and support throughout this process and ensure that you remain well-informed and prepared for any regulatory changes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.