New trust reporting rules to take effect in 2023 taxation year

Additional types of trusts will be required to file a T3 income tax return annually

New trust reporting rules to take effect in 2023 taxation year

The Canada Revenue Agency (CRA) has announced that new trust reporting rules will start to take effect in the 2023 taxation year.

Under the current rules, a trust must file a T3 annual income tax return only if it has tax payable or distributes all or part of its income to its beneficiaries. The new rules will require additional types of trusts to file their T3 return annually. All non-resident trusts currently required to file a T3 return and express trusts that are resident in Canada, with some exceptions, will have to provide additional information annually under the new rules.

This additional information will include the identity of all trustees, beneficiaries, and settlors of the trust and each person who can exert control or override trustee decisions over the appointment of income or capital of the trust as provided under the trust terms or a related agreement. A trust will have to file a new schedule with its T3 return to report the additional information, even if it has no income to report.

A penalty of $25 for each day of delinquency will be imposed on a trust that fails to provide the additional information about the beneficial ownership. If a failure to file the return was made knowingly or due to gross negligence, an additional penalty will apply. Existing penalties regarding the filing of T3 returns will continue to apply under the new rules.

Certain types of trusts are exempted from filing the additional information. These trusts are:

  • mutual fund trusts, segregated funds and master trusts
  • trusts governed by registered plans
  • lawyers’ general 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 in assets throughout the taxation year, and provided that their holdings are confined to deposits, government debt obligations and listed securities

The CRA claimed that the new rules would improve the collection of beneficial ownership information and help the CRA assess the tax liability for trusts and their beneficiaries. The new rules will apply to taxation years ending after December 30, 2023. CRA has advised trusts to file their 2022 T3 return as usual.