Navigating Canada's Trust Tax Reporting Shift.
New Reporting Requirements for Trusts.
In the federal government’s quest to start collecting more information from taxpayers each year, they have legislated new reporting requirements for most Canadian trusts. As part of the annual trust tax filing, there is now a requirement to provide additional personal information about all trustees & beneficiaries of the trust, as well as for the original settlor of the trust. This new set of rules is applicable for trusts whose taxation year ends after December 30, 2023. Since most trusts in Canada have a mandated December 31 year-end, that means the new rules will apply to the 2023 tax filings for many trusts.
Who is affected?
If you have a trust settled in Canada, or a non-resident trust that needs to file a Canadian trust tax return, these new reporting rules will most likely apply to you. These rules will also apply to bare trust arrangements, which have typically not had to submit tax filings in the past (more on this below). Some trusts will be exempt from the new reporting rules - some of the types of trusts that are exempted from these new rules include:
Graduated rate estates, qualified disability trusts, employee life and health
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)
For those trusts that are set up to hold shares in private companies
For a full list of trusts that are exempt from the new reporting rules, click here.
What is changing?
Currently, trusts resident in Canada are not required to file an annual T3 income tax return unless tax is payable for that year, the trust disposes of capital property, or the trust has received any income that has been allocated to one or more beneficiaries (if greater than $500). Most personal trusts resident in Canada will now be required to file an annual T3 return even where they have not been required to in the past. Trusts that include an arrangement where a trust can reasonably be considered to act as an agent for its beneficiaries, commonly known as “bare trusts,” will be expressly subject to the new reporting requirements. Many bare trust arrangements, such as those commonly used in joint ventures, real estate holdings, or probate planning, which were previously not subject to T3 reporting requirements will now have to consider the additional costs of compliance. For a better understanding of bare trusts, see the following article (which includes a detailed video explanation as well!).
Also, all trusts that will be obligated to file a T3 trust tax return under the new rules will have to include a new schedule report the identity of various stakeholders.
More information required
Under the new rules, every trust that must file a T3 return has to file the new Schedule 15 which discloses additional information (like the name, address, date of birth, jurisdiction of residence, and SIN/ITN) for each:
Beneficiary;
Person who has the ability (through the terms of the trust or a related agreement) to exert influence over trustee decisions regarding the appointment of income or capital of the trust;
Settlor; and Trustee
For our clients who are already filing trust tax returns each year, we will be sending out communication to begin gathering this information well in advance of the March 2024 filing deadline for 2023 trust tax returns. It is important to begin this process as soon as we can, since there may be complications due to a change in people involved in each trust, whether due to death of a trustee/beneficiary, new beneficiaries born, or trustees/beneficiaries no longer included in a trust due to relationship breakdown.
For any clients who believe they might be affected by these new rules and want additional clarification, please reach out to us to let us know.