The Federal budget of 2018 introduced draft legislation for new trust reporting rules, which were to apply to trusts with year-ends on or after December 31, 2021. The draft was later revised, postponing the effective date to December 15, 2022 and receiving Royal Assent for application to trusts with year-ends on or after December 31, 2023. The new legislation changes the tax return filing requirements for trusts and introduces additional trust information disclosure rules.
Before the introduction of the new legislation, trusts were only required to file a tax return if they had to pay tax, disposed of a capital property or allocated income/capital to beneficiaries. However, the new legislation requires all resident Canadian trusts to file a T3 tax return unless they meet certain exemptions, such as trusts in existence for less than three months, trusts with assets worth $50,000 or less, and certain types of trusts, such as lawyers\’ general trust accounts, non-profit organizations, or registered charities.
The new trust reporting rules also require additional information disclosure in the tax return, including the name, address, and taxpayer identification number of each trustee, beneficiary, settlor, or protector of the trust. The penalties for non-compliance include daily fines ranging from $100 to $2,500, and a 5% penalty of the maximum property value held by the trust for knowingly failing to file or gross negligence. Trusts should make a reasonable effort to gather the required information to avoid penalties.
If you are unsure if the new trust reporting legislation affects you, consult a trusted advisor to review your situation.
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