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As we step into the new year, we would like to bring your attention to significant tax-reporting changes that may impact many Canadians, especially those who may not even be aware that they are part of a trust.
New tax-reporting obligations for trusts, effective for tax years ending after December 30, 2023, mandate the annual filing of a T3 Trust Income Tax and Information Return, requiring disclosure of beneficiaries and other pertinent information. This measure is part of Canada's broader efforts to combat tax evasion and strengthen its anti-money-laundering initiatives.
The new filing requirements extend to "bare trusts," where the trustee acts solely at the direction of the beneficiary. Some bare trusts are created in the absence of formal paperwork, while still having a T3 filing requirement.
Common scenarios that might trigger a filing obligation include adult children added to the title of their parents' homes or parents co-signing mortgages for their adult children. In such cases, the setup is likely to be deemed a bare trust, necessitating a T3 return filing.
Trusts required to file a T3 return must report beneficial ownership information on Schedule 15. This schedule collects details on trustees, settlors, beneficiaries, and controlling persons (those influencing trustee decisions) collectively referred to as "reportable entities".
Information required includes name, address, date of birth, country of residence, and Tax Identification Number (e.g., Social Insurance Number). If beneficiary information is unknown at filing, Part C of Schedule 15 must detail trust terms extending the beneficiary class to unknown entities (e.g., unborn children).
The 2023 T3 filing deadline is March 30, 2024. It's essential to note that late-filing penalties are an annual maximum of $2,500. CRA announced it will waive late-filing penalties for bare trusts submitting T3 returns for the 2023 tax year after the March 30, 2024 deadline. However, this relief does not apply to cases involving knowingly failed filing, gross negligence, false statements, or omitted information on a return.
As an accounting firm, we understand the potential impact of these changes and encourage you to assess whether your circumstances might fall under the new regulations. If you believe you are part of a bare trust, we recommend you contact us for professional advice to ensure compliance and avoid potential penalties.
For further information, please read:
CRA: New trust reporting requirements for T3 returns filed for tax years ending after December 30, 2023.
Thank you for your attention, and we wish you a successful and compliant new year.
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