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New rules for trust (“T3”) reporting – YOU MAY BE AFFECTED

We would like to inform you about the new rules for trust (“T3”) reporting that have been recently introduced by the Canadian government. These rules may affect you whether you knowingly have a trust or not. Please read on for more information.

BACKGROUND

Effective December 31, 2023, for the 2023 calendar year, the new trust reporting rules under Bill C-32 (Fall Economic Statement Implementation Act, 2022) aim to fill significant gaps in the collection of information related to trusts through the tax system. The government’s intention is to address tax evasion, money laundering, and other financial crimes.

The current rules for trust reporting dictate that inactive trusts are not required to file, and no beneficiaries of the trust are required to be identified. A T3 return for a tax year must be filed if the trust:

• Has to pay tax for the year
• Disposes of a capital property, or
• Distributes all or part of its income or capital to its beneficiaries

Under the new reporting rules, the requirement to file and the information gathered on trust stakeholders is greatly expanded.

WHAT ARE THE NEW TRUST REPORTING RULES?

For taxation years ending after December 30, 2023 (effectively 2023 and later tax years) the new reporting requirements affect:

• “Express trusts” resident in Canada are trusts created with the settlor’s express intent, usually made in writing. For example, a family trust.
• Non-resident trusts that are currently required (see current rules above) to file a T3 return.
• “Bare trusts” – arrangements whereby trustees have no obligation other than to deal with the trust property as instructed by the beneficiaries. Put simply, the trustee holds the legal title but has no independent power, discretion or responsibility over the property. For example, someone adds a child to the legal title of a property to avoid future probate fees but they remain the sole beneficial owner of the property.

**TIP – unsure if you are a party to a bare trust arrangement? Recall contractual agreements where a family member, corporation or related party holds an asset in trust for you or vice-versa. These can also take a written form such as a “Bare Trust Agreement”, “Nominee Agreement”, “Declaration of Bare Trust”, or “Agency Agreement”. If you’re still unsure, please discuss it with us or have your lawyer contact our office.

Common exemptions from the new reporting rules (but aren’t limited to):

• Trusts that have existed for less than 3 months at the end of the year.
• Trusts that hold less than $50,000 CAD in assets throughout the tax year (as long as they only hold specific types of assets such as deposits, government debt obligations, and listed securities).
• Graduated rate estates and qualified disability trusts.
• Trusts governed by registered plans (i.e. RRSP, TFSA, FHSA).
• Lawyers’ general trust accounts.
• Cemetery care trusts and trusts governed by eligible funeral arrangements.

OKAY, I THINK THESE RULES APPLY TO ME – NOW WHAT?

As noted above, you will be required to file a T3 trust return for the affected trust. This may be new for those who have inactive trusts and weren’t previously required to file or for those who have bare trust arrangements that fall under the new reporting rules.

In addition, the T3 trust return has the new Schedule 15 “Beneficial ownership information of a trust” for you to report information regarding all “reportable entities”. A copy of Schedule 15 can be found here.

Reportable entities include all the trust’s trustees, beneficiaries that are known or ascertainable, settlors, and in some instances, a protector of a trust. The reportable information includes:

• Name
• Type and classification of entity
• Address
• Date of birth
• Country of residence
• Taxpayer identification number (i.e. SIN, trust account #, business number, or foreign equivalent)

WHAT HAPPENS IF I DON’T FILE?

The penalty for not filing a T3 when required and/or not filing Schedule 15 with the return is $25 for each day the return is late with a minimum penalty of $100 and a maximum penalty of $2,500.

The new rules also impose a significant additional gross negligence penalty where the trust fails to file either knowingly or due to gross negligence. This additional penalty is 5% of the maximum value of the property held by the trust in the applicable year, with a minimum penalty of $2,500. This also applies to false statements and omissions amounting to gross negligence as well as failure to respond to a CRA demand to file.

HOW CAN WE HELP?

Your Sawatsky Chartered Professional Accountants team can assist you with filing the T3 trust return and associated Schedule 15.

If you would like our assistance, please have the following information ready and contact our office at your earliest convenience:

• A copy of the most up-to-date trust agreement.
• Reportable information for all reportable entities, as described above. For more detail, see T3 Schedule 15 “Beneficial ownership information of a trust”.

Please feel free to reach out to us if you have any questions or require further assistance. By phone at 705-329-7700 or email us at info@sawtsky.com

Best regards,

SAWATSKY CHARTERED PROFESSIONAL ACCOUNTANTS