Publication

New Trust Reporting Requirements Effective For 2023 Taxation Year

Published:

December 12, 2023

Author(s):

• Matthew Orrell

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Updated April 16, 2024.

If you’re a trustee of a trust that might no longer serve its purpose or is sitting idle, now’s the time to review it and consider whether to continue it or wind it down. With some exceptions, all trusts in existence on December 31, 2023 will be subject to new annual reporting requirements starting in 2024 and harsh non-compliance penalties for incomplete or inaccurate information could apply. Winding up a trust after December 30, 2023 won’t eliminate your obligation to fulfill the new reporting obligations for the 2023 taxation year – but it will reduce or eliminate your compliance obligations in subsequent years. 

Affected Trusts. Unless exempted, all trusts with a year end on December 31, 2023 or later – even if they didn’t earn income – must comply with the new reporting requirements. These new reporting requirements also apply to trustees holding legal title to residential property in Canada subject to the Underused Housing Tax Act’s reporting obligations, creating a requirement to file a T3 Return and Schedule 15. Notably, although the Canada Revenue Agency’s (CRA) original position was that the new reporting obligations also extend to bare trusts – despite the fact bare trusts aren’t considered taxable trusts from a tax law perspective – on March 28, 2024 CRA exempted bare trusts from the reporting requirements for the 2023 taxation year. In addition to bare trusts for 2023, trusts exempted from the new reporting requirements include:

• Mutual fund trusts, segregated funds and master trusts.

• Trusts governed by registered plans (for example, deferred profit-sharing plans; pooled registered pension plans; registered disability savings plans; registered education savings plans; registered pension plans; registered retirement income funds; registered retirement savings plans; registered supplementary unemployment benefit plans; and tax-free savings accounts).

• Lawyers’ general (not client-specific) trust accounts.

• Graduated rate estates and qualified disability trusts.

• Trusts that qualify as non-profit organizations or registered charities.

• Trusts that have been in existence for less than three months.

• Trusts that hold less than $50,000 throughout the taxation year if the holdings are limited to bank deposits, government debt obligations, or listed securities.

New Reporting Requirements. Trustees will be required to disclose substantially more information to CRA than in the past. If a trust has never earned income since its settlement, it’s likely that trust has never filed a T3 Return.  However, under the new reporting requirements, if you’re currently a trustee of a trust you’ll likely be required to complete a T3 Trust Income Tax and Information Return. The majority of trustees will also be required to disclose information about each of the following:

• The Trustee(s) of the trust.

• The beneficiary, including contingent beneficiaries or corporations and trusts that are current or potential beneficiaries.

• The settlor of and any other contributor to the trust.

• Any person able to exert control or influence over the trust.

For each of these individuals, the trustee must report all the following information:

• Legal Name.
• Address.
• Date of birth (if applicable).
• Jurisdiction of residence.
• Tax Identification Number (SIN, ITN or BN, as applicable).

Non-Compliance Penalties. Trusts that fail to comply with the new reporting obligations will be subject to harsh penalties, particularly for trusts holding valuable assets. 

• Failure to file a T3 Return for the 2023 taxation year or failure to provide the information required under the new reporting requirements will be subject to a penalty of $25 for each day the T3 Return goes unreported, with a minimum penalty of $1,000 and a maximum of $2,500.

• If the CRA demonstrates the failure was made knowingly or due to gross negligence, an additional penalty of 5% of the maximum value of the property held by the trust during the relevant taxation year applies, with a minimum $2,500 penalty.

For example, for an intentional failure to file a T3 Return for property held in trust with a value of $100,000, CRA could assess a minimum $5,025 penalty on the first day the T3 Return remains unreported. But because CRA routinely reassesses taxpayers years after a specific taxation year, practically this penalty could be much higher unless the taxpayers voluntarily file late before a reassessment.

Please contact your McInnes Cooper lawyer or any member of our Tax Solutions Team @ McInnes Cooper to discuss whether and when you should wind up your trust.

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