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New trust reporting rules: What you need to know

A woman clipping pink roses in her garden.

If you are a trustee of a trust, be aware that the federal government has proposed new reporting rules, that if passed into law (expected in 2021) would impact the trust’s required income tax filings for taxation years ending on or after December 31, 2021. Failure to comply could result in penalties to you — as the trustee.

Currently, trusts that do not earn income or dispose of capital property usually have no T3 return filing obligation. This will change when the new rules take effect, for the period ending on or after December 31, 2021 (subject to the final terms of legislation). All trusts that meet the definition of an “express trust” (more details are provided below) will have to file a T3 Trust Income Tax and Information Return. This will impact trusts that have no income or other reasons for filing a T3 Income Tax Return, as such a return will now be required. 

What are the filing obligations?

Under the new trust rules, a new disclosure schedule will be required and you will need to report the following information for trustees, beneficiaries, settlors and protectors of the trust:    

  • name
  • address
  • date of birth (for individuals)
  • tax jurisdiction of the individual’s residence
  • taxpayer identification number (e.g., social insurance number, social security number or business number)

What’s the purpose of the new reporting rules?

Because more information will be provided by trustees, the Canada Revenue Agency expects that it will be better able to assess any tax liability for trusts and their beneficiaries. 

Do all trusts have these filing obligations?

The new rules apply to express trusts that are resident in Canada. They also apply to non-resident trusts that are deemed to be resident in Canada under provisions of the Income Tax Act (Canada) and are currently required to file a T3 return. An express trust is created by a settlor during their lifetime or at death in a will. A few examples of an express trust are alter ego trusts, spousal trusts and family trusts. 

The following types of trusts are exempt from the new rules:                          

  • graduated rate estates;
  • qualified disability trusts;
  • trusts that qualify as non-profit organizations or registered charities;
  • trusts that have been in existence for less than three months; and
  • trusts that hold less than $50,000 in assets throughout the year (if the holdings are limited to deposits, government debt obligations and listed securities).

What if the trust pays no income tax? Is there still a filing obligation?

Yes. For trust taxation years ending on or after December 31, 2021, you will have to file a T3 return in order to file this new trust disclosure information, even if the trust has no activity during the year or there’s no income tax payable. If you have never filed a T3, be aware that the filing requirement includes providing the trust deed and ownership details of private company shares. It’s important to plan ahead since it could take more time than you expect.

What if you fail to comply with the new rules?

If you fail to file the T3 return and the required disclosure schedule by the deadline, the penalty will be $25 per day (with a minimum of $100 and a maximum of $2,500). If the failure to file was intentional or due to gross negligence, an additional penalty of 5% of the maximum fair market value of the property held by the trust in the year (with a minimum penalty of $2,500) will apply.

These new trust rules will mean more work for trustees in terms of gathering and reporting the required information, especially if a T3 return has never been filed before.

If MD Private Trust Company is involved in the administration of such a trust as trustee, co-trustee or agent for trustee, we will prepare the necessary documentation and reach out to you for any missing information. Otherwise, you should contact your legal or tax advisor to ensure you are in compliance with your legal and tax responsibilities.

If you have general questions, please contact your MD Advisor* or your MD Private Trust Company Estate and Trust Advisor. 

* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.