Trust Returns
In December 2022, legislative amendments were introduced to mandate additional information reporting on an annual basis for certain types of trusts in Canada. The amendments are effective for taxation years ending after December 30, 2023.
There are three main changes under the new rules:
- All trusts, unless certain conditions are met, will be required to file an annual T3 Return with the CRA;
- Trusts that are required to file a T3 Return, other than listed trusts (as defined by the CRA) generally need to complete Schedule 15 in their annual T3 return to report beneficial ownership information;
- Bare trusts are subject to the new reporting rules.
Implications For Bare Trusts
Bare trusts, an increasingly common feature in estate planning, typically arise in situations where one entity or person holds legal ownership but acts as a trustee for the benefit of another entity or person.
The requirement to file a trust return in bare trust scenarios now includes:
- Home Ownership:
- A child is listed on the title for the right of survivorship of a parent’s house.
- Parents are on the title for financing their child’s house.
- Corporations owning property for the benefit of an individual (resulting in the need for the corporation to file both a T2 Corporate Tax Return and a T3 Trust Tax Return).
- Individuals owning property for the benefit of a corporation.
- Bank accounts or non-registered investment accounts:
- A child is a joint owner of a parent’s bank account (e.g., for probate purposes).
- A parent is a joint owner of a minor child’s bank account, holding the ownership in trust for the child.
The outlined changes may lead to a situation where a trust is required to file for the first time. Trust returns for the 2023 taxation year must be submitted within 90 days after December 31, 2023, with the filing deadline set for March 30, 2024. It’s essential to note that even if there are no taxes owed, late filing may incur penalties, potentially reaching up to 5% of the highest total fair market value of all property held by the trust in the given year.
While there are exceptions to the new filing requirements, we recommend seeking professional accounting advice to determine whether the new rules apply to your circumstances. If you need assistance with trust reporting, contact our Estate Group and we would be happy to help.
