New Trust Reporting Rules for Taxation Years Ending After December 30, 2023

  • May 15, 2024
  • Sarah Hagarty

Overview

The new trust reporting rules, enacted in December 2022, are now in effect, for taxation years ending after December 30, 2023. The new rules will require a greater number of trusts to file both a T3 Trust Income Tax and Information Return (“T3 Return”) and a new Schedule 15 - Beneficial Ownership Information of a Trust (“Schedule 15”). Trustees of a wide variety of trusts, including bare trusts and non-resident trusts, now have the additional onus of determining which trusts (that were previously exempt from filing a T3 Return) are captured by the new rules.

If the new rules apply, trustees are required to gather and maintain information for each trustee, settlor, beneficiary and controlling person of trusts they manage, which may be particularly cumbersome where the trust has not filed a T3 Return in the past.

The New Reporting Rules

The Income Tax Act (Canada)[1] requires a trust to file a T3 Return within 90 days following the end of its taxation year.[2] Notwithstanding this requirement, prior to the implementation of the new trust reporting rules, several exemptions were available, such that a trust was only required to file a T3 Return for a taxation year if certain criteria were met. Examples of such criteria include where the trust had tax payable, was a Canadian-resident trust that disposed of capital property, was a deemed Canadian-resident trust, or received from the trust any income, gain or profit that was allocated to one or more beneficiaries (and certain other conditions applied).

The new rules have introduced three main changes to the trust reporting requirements. Effective for taxation years ending after December 30, 2023:

  • all trusts will be required to file an annual T3 Return unless certain conditions are met;
  • trusts that are required to file a T3 Return, other than listed trusts, generally need to complete Schedule 15 with their annual T3 Return to report beneficial ownership information; and
  • Bare trusts are subject to the new reporting rules.

As such, certain trusts including express trusts (which are trusts created with the settlor's express intent as opposed to resulting or constructive trusts, or certain trusts deemed to arise under the provision of a statute) that previously were not required to file a T3 Return are now required to comply with the new reporting rules. Under the new rules, many informal trust and agency relationships may be required to file a T3 Return. For example, a T3 Return may need to be filed where:

  • a parent corporation holds assets in trust for its subsidiary;
  • a general partner in a limited partnership holds certain assets of the partnership;
  • an individual purchases property in trust for an owner that is not clearly identified; or
  • an individual is the registered titleholder of real estate they do not beneficially own.