New Trust Reporting Rules and Ongoing Trust Compliance

The Canada Revenue Agency (“CRA”) is stepping up its scrutiny of trusts in Canada by increasing its collection of information regarding beneficial ownership. Trustees and their advisors need to be prepared to respond to the new compliance and reporting obligations.  Likewise, financial institutions are also requiring more information from trustees before opening a trust bank account and dealing with trustees as the bona fide decision-makers of the trust.  In light of these new compliance and reporting measures, clients need to be more vigilant than ever regarding the settlement and ongoing activities of a trust. 

New Trust Reporting Rules

Currently, a trust is only required to file a T3 Trust Income Tax and Information Return (a “T3 Return”) for a given year if it has tax payable or if it distributes all or part of its income or capital to its beneficiaries.  However, effective the 2021 taxation year and for years subsequent, non-resident trusts required to file a T3 Return and certain express Canadian-resident trusts will be required to file additional information annually, and as such certain trusts will have to file a T3 Return where currently they do not.

For taxation years ending on or after December 31, 2021, non-resident trusts that file a T3 Return and all Canadian-resident trusts will be required to report the identity of the following individuals:

• settlors,
• trustees,
• beneficiaries, and
• anyone who has the ability to exert control over the trust or override the trustee’s decisions regarding the appointment of income or capital (such as a protector).

Specific information for each settlor, trustee, beneficiary, and protector includes their

• name,
• address,
• date of birth (if an individual),
• jurisdiction of residence, and
• taxpayer number. The taxpayer number includes a social insurance number (if an individual), a business number (if a corporation), and a CRA account number issued to a trust in Canada, or similar account number issued in the jurisdiction in which the trust is resident.

The new information will be filed in a new schedule to the T3 Return, the form of which has not yet been released by the CRA.

There are exceptions: mutual fund trusts, segregated funds and master trusts, trusts governed by registered plans (i.e., RRSPs, RRIFs, RDSPs, RESPs, TFSAs, deferred profit sharing plans, pooled registered pension plans, etc.), lawyers’ general trust accounts, graduated rate estates and qualified disability trusts, trusts that qualify as non-profit organizations or registered charities, trusts in existence for less than three months, and trusts that hold less than $50,000 in assets throughout the taxation year if their holdings are confined to deposits, government debt obligations and listed securities.

The penalty for failing to file a T3 Return or the new schedule is $25 per day, with a minimum penalty of $100 and a maximum of $2,500. If the failure to file is made knowingly or due to gross negligence, a further penalty equal to 5% of the maximum value of the trust property held by the trust during the year will apply. Further still, late-filing and non-filing penalties with respect to the T3 Return will continue to apply, which can include a penalty of up to $25,000 or a fine and imprisonment.