New Trust Reporting Requirements for Canada

Paul Sharpe, CPA, CA
February 6, 2024

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Learn about the trust reporting changes for tax years ending after December 30, 2023.

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This article dives into the significant changes in the trust reporting requirements that have recently come into effect. 

These changes, impacting tax years ending after December 30, 2023, could have considerable implications for your business.

We’ll demystify the complexities, providing you with clear, actionable insights on what these changes mean and how they may affect your business operations. 

So, let's break down these new trust rules in a way that's easy to understand and implement.

Trust Reporting

In Canadian business, trust reporting plays an important role in maintaining transparency and adhering to tax laws.

At its core, trust reporting is about declaring the income and assets of a trust to the Canada Revenue Agency (CRA). 

Trusts, which can be used for various purposes such as estate planning, asset protection, and tax planning, have certain obligations under Canadian law. With the new rules coming into play, the scope of these obligations has expanded. 

The goal of these changes is to increase transparency in financial dealings and to ensure that all entities, including trusts, contribute their fair share to the public coffers.

What is Trust Reporting?

Trust reporting, in essence, means filing a T3 return

This is the form used by trusts to declare their income, deductions, and credits to the Canada Revenue Agency (CRA). 

Who is Affected by the New Trust Reporting Rules

The recent changes in trust reporting regulations cast a wider net, encompassing a broader range of trusts than before. 

It’s crucial for business owners to understand whether their trusts fall under these new requirements. 

Primarily, “express trusts,” which are set up intentionally by someone (known as a settlor), must now follow these new reporting standards. 

This includes a wide range of trust types, including:

  • Family Trusts - Set up to manage and protect family assets for the benefit of family members.
  • Business Trusts - Created to hold and manage business assets, often for the purpose of controlling or financing a business.
  • Estate Trusts - Established as part of estate planning to manage and distribute an individual's assets after their death.
  • Bare Trusts - Where the trustee holds legal title to property but has no discretion over its use, acting solely on the beneficiary's instructions.
  • Investment Trusts - Designed to hold and manage investment portfolios for beneficiaries.
  • Charitable Trusts - Set up to hold assets for charitable purposes, benefiting specific causes or the general public.

So if you've set up a trust on purpose, like a family trust or a business trust, these new rules probably apply to you. 

However, not every trust is impacted.

There are notable exceptions, such as:

  • Trusts that have been in existence for less than three months,
  • Trusts holding assets under $50,000 in certain categories.
  • Trusts that serve specific functions, like those operated by charities or used as lawyer’s general trust accounts, are also exempt. 

Changes to Bare Trust Reporting

We should highlight the changes to bare trust reporting, specifically. 

The new requirements mandate that Bare Trusts file a T3 Trust Income Tax and Information Return, significantly expanding the scope of trusts that must report to the Canada Revenue Agency (CRA). 

This change aims to enhance transparency, especially for trusts involved in real estate or holding substantial assets. 

Previously, bare trusts with assets under $50,000 were exempt from certain reporting obligations, but Bare Trusts now face stricter scrutiny. This means filing a T3 is necessary for bare trusts, regardless of asset value.

Comparison: Old vs. New Trust Reporting Rules

Let’s take a look at how the trust reporting rules used to work with how they work now under the new regulations. Understanding these changes is key for business owners to see how they might be affected.

Old Trust Rules:

  • Previously, trust reporting was more limited in scope.
  • Only certain types of trusts had to report detailed information.
  • The focus was primarily on trusts with significant taxable income or assets.

New Trust Rules:

  • The scope has broadened significantly to include many types of express trusts.
  • Now, detailed information is required about all trustees, beneficiaries, and settlors (the person who creates the trust), regardless of trust income or asset size.
  • Even trusts with no income or relatively small assets (except those under $50,000 in certain categories) need to report.

Detailed Breakdown of New Requirements

With the new trust reporting rules, there’s a lot more detail required in the reports. This section will help you understand exactly what information you need to gather and report:

Information on Key Individuals:

  • You'll need to provide specific details about the trust's settlor, the trustees (people who manage the trust), and the beneficiaries (those who benefit from the trust).
  • This includes names, addresses, birthdates, and taxpayer identification numbers.

Identifying Beneficiaries:

  • The new rules require identifying all beneficiaries, not just the primary ones.
  • This means including anyone who could possibly benefit from the trust, now or in the future.

Comprehensive Reporting:

  • It's not just about the money anymore. The reporting needs to cover the trust’s structure and operations.
  • This includes changes in trustees, beneficiaries, or the trust's terms.

Understanding these requirements is key to ensuring your trust complies with the new regulations and avoids any penalties for non-compliance.

Trust Compliance Tips

Here are a few quick tips to help you stay compliant if you’re dealing with the new trust reporting regulations.

  • Detailed Record-Keeping: Ensure thorough documentation of all trust-related activities and parties involved.
  • Regular Updates: Keep the trust's information, including beneficiaries and trustees, current.
  • Taxpayer Identification Number (TIN): If your trust doesn't have a TIN, apply for one through the CRA. This is crucial for reporting purposes.
  • Consult Guidelines: Review CRA’s most up-to-date information, including the T3 Trust Guide for 2023 and info on the New Trust Reporting Requirements.
  • Seek Professional Help: If in doubt, consult a tax professional familiar with trust law and reporting requirements.

Penalties for Non-Compliance

The penalties for failing to file your T3 trust return or even late filing it can add up quickly.

  • Monetary Penalties: Fines can be substantial, depending on the nature of the non-compliance.
  • Accumulative Penalties: Some violations may incur daily penalties until the correct information is submitted.
  • Harsher Penalties for Serious Offenses: Gross negligence or willful blindness can result in more severe penalties.
  • Further Information: For more details on the penalties, refer to the CRA's guide to Penalties for late or incorrect trust filings.

The provided links above offer more detailed information for those seeking an in-depth understanding of compliance and penalties.

Final Thoughts

As we've seen, the new trust reporting requirements in Canada are comprehensive and carry significant implications for trust management. 

These changes emphasize the need for meticulous record-keeping, regular updates, and a thorough understanding of your trust's structure and operations. 

While navigating these changes may seem daunting, remember that staying informed and seeking professional guidance can greatly simplify the process. 

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Article by
Paul Sharpe, CPA, CA
Originally published
February 6, 2024
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