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The 2018 Federal budget introduced new and enhanced reporting requirements for trusts. These new rules are now effective for tax years ending December 31, 2023 and later. Most trust returns will have a due date of March 30, 2024. Under the new requirements, most trusts must file a return with additional information, including trusts that previously were exempt from filing.   

Highlights of the new rules include: 

• Every “express trust” resident in Canada, unless specifically excepted, would be required to file a T3 Trust Income Tax and Information Return annually, even if it had no income or dispositions of property to report. This term covers a broad range of trusts including various personal trusts and “bare trusts”.  
• Unless specifically excepted, every trust filing a T3 return would be required to report additional information with respect to each trustee, beneficiary, settlor, and protector or other person with the ability to exert influence over trust distributions. 
• The requirement to file a T3 return and to report settlor, trustee, beneficiary, and protector information would apply to “bare trust” and agency relationships, even though such arrangements are deemed not to be a trust for other purposes under the Income Tax Act. A “bare trust” is commonly used to separate legal and beneficial ownership over real property, such as when legal title is held by an individual and beneficial ownership of the property is held by a corporation.  

Are any trusts exempt from the new rule?   

Some of the relevant exemptions from a trust return filing requirement include: 

1. Trusts that have been in existence for less than three months; 
2. Trusts that hold less than $50,000 in certain assets throughout the taxation year (such as cash, bonds, securities listed on a stock exchange); this does not apply to bare trust situations.  
3. Lawyers’ general trust accounts (except for separate trust accounts maintained for particular clients);  
4. Registered charities or non-profit associations; 
5. Mutual fund trusts, segregated funds, and master trusts; and 
6. Graduated rate estates and qualified disability trusts. 

What is considered a Bare Trust?   

A bare trust exists when the legal ownership of a property is held by a trustee that merely acts as an agent for the beneficiaries. The beneficiaries would report the income or loss arising from that property for income tax purposes. Previously, bare trusts were not treated as trusts for most purposes under the Income Tax Act. Under the new rules, the party with the legal ownership (the trustee(s)), must file a T3 trust return.  

A few common examples of bare trust arrangements include: 

1. An individual has legal title to a property, but a corporation has beneficial ownership and reports income and loss from the property for tax purposes. 
2. A general partner holds legal title to real property held by a limited partnership. 
3. A property is legally owned by one corporation (i.e., a nominee corporation), and another corporation has beneficial ownership. 
4. Parents are on title for their child’s property only for banking purposes, with an agreement that on a future sale, all proceeds will go to the child. 

What are the enhanced reporting requirements?  

Going forward, trusts must report the following additional information on Schedule 15 for all reportable entities, including trustees, beneficiaries, settlors, and any person with ability to exert control over or override trustee decisions over the appointment of trust income or capital. 

• Name  
• Description of the entity (corporation, trust, individual) 
• Address  
• Date of birth  
• Country of residence   
• Tax identification number (such as the Social Insurance Number for an individual) 

Beneficiaries also include those named as residual or contingent beneficiaries in the trust document. 

Penalties

Returns must be filed within 90 days of the tax yearend or the reporting entity may be subject to penalties. The penalties start at $25 a day, with a minimum penalty of $100 and a maximum of $2500. There are additional significant penalties for circumstances amounting to gross negligence or false statements. 

For more information on the trust return changes, contact your Rise Advisor. 

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