Under the new reporting obligations, trustees of T3 trusts are required to provide detailed information about the trust, its beneficiaries, income, and distributions. There are significant penalties for non-compliance and there is a significant expansion of those required to file, specifically in relation to bare trust relationships.
It is important for trustees of T3 trusts to understand and comply with the new reporting obligations to avoid penalties and potential legal consequences. They should carefully gather and provide all necessary information required by the T3 Trust Report to fulfill their reporting obligations accurately and in a timely manner.
Who has to file?
- You have a trust that is not exempt from filing this year (see exemptions below).
- You filed a UHT return because you had a bare trustee relationship.
- You have a bare trust, which is basically your name on any asset that someone else benefits from.
What are some examples of bare trusts?
- A parent is on title of a child's home (without the parent having beneficial ownership) to assist the child in obtaining a mortgage.
- A parent or grandparent holds an investment or bank account in trust for a child or grandchild (if less than $50,000 in fair market value throughout the year there may be an exception — see exceptions below).
- One spouse is on title of a house or asset although the other spouse is at least a partial beneficial owner.
- A child is on title of a parent's home (without the child having beneficial ownership) for probate or estate planning purposes only.
- A child is on a parent's financial accounts (or other assets) to assist with administration after the parent's passing.
- A corporate bank account is opened by the shareholders with the corporation being the beneficial owner of the funds.
- A corporation is on title of an individual's real estate, vehicle or other asset, and vice-versa (if you filed a UHT return due to a bare trustee structure this will catch you).
- Assets registered to one corporation but beneficially owned by a related corporation.
- Use of a nominee corporation for real estate development / holding purposes.
- A partner of a partnership holding a bank account or asset for the benefit of all the other partners.
- A joint venture arrangement where the operator holds legal title to development property as an agent for the benefit of other participants.
- A cost-sharing arrangement where a person holds a business bank account, or other assets, while having no, or only partial, beneficial interest.
- A property management company holding operational bank accounts in trust for their clients.
- A lawyer's specific trust account (a lawyer's general trust account is largely carved out, but a specific trust account is not).
CRA has indicated that, for bare trusts only, the late filing penalty would be waived for the 2023 tax year where the filing is made after the due date of April 2, 2024. However, this does not extend to the penalty applicable where the failure to file is made knowingly or due to gross negligence. As there is limited guidance, it is recommended that disclosures be made in a timely manner.
What do we need to tell the CRA?
Trusts and bare trusts that have a year ending after December 30, 2023 (or were wound up in 2023) will have to file T3 Trust Returns and a Schedule 15 detailing the following, for every person who is a trustee, beneficiary, settlor or has the ability to exert influence over trustee decisions regarding the appointment of income or capital of the trust:
- Name
- Address
- Date of birth (for individuals)
- Country of residence (for tax purposes)
- Social Insurance Number, Business Number, Trust Number or other Tax Identification Number
What if I do not do this?
The penalty to which someone is liable for not reporting is the greater of $25/day (100-day max) and, if CRA determines gross negligence, the greater of $2,500 or 5% of the highest fair market value of all of the property held by the trust.
Are there any exceptions to the filings?
Yes — but they are narrow. The key exceptions are:
- Registered vehicles (i.e. RRSP, RDSP, TFSA)
- Trusts less than 3 months old
- Trusts that hold less than $50,000 in assets throughout the taxation year (provided holdings are confined to deposits, government debt obligations and listed securities)
- Charities or not-for-profits
- Employee trusts
- Cemetery care trusts
- Graduated Rate Estates (GRE)
Will your fees be higher as a result?
Yes. Due to the greater risk and work involved in trust filings, we expect our fees will be increasing for trusts. While each trust is unique, we expect fees for filings will increase to around $700 minimum for a standard trust. We will also request that all trusts complete a trust reporting questionnaire prior to starting their files, and we will be asking every trust to complete a Trust Disclosure Form here.
Can I do anything now to avoid this?
Unfortunately not, but you may wish to wind up trusts to avoid the future filing obligations.
Where can I learn more?
CRA has a page on this change here. You can also reach out to the partner on your file for more information.
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