New Trust Reporting Guidelines in Canada

Key Changes in Trust Reporting

The Canadian Government’s adjustments to the Income Tax Act have introduced pivotal changes for trusts from January 1, 2023. These changes mandate that all express trusts, regardless of their previous status or activity levels, must now file a T3 Trust Income Tax and Information Return (T3 Return). This includes Family Trusts, Alter Ego or Joint Partner Trusts, and Bare Trusts.

Decoding Bare Trusts

Understanding Bare Trusts is essential in this new landscape. These trusts involve a trustee holding legal title to an asset, with the beneficiary controlling its use and benefits. Such arrangements are prevalent in cases where parents transfer real estate titles to their children or add them to bank accounts for estate planning or during corporate reorganizations involving real estate. Those interested in these trusts must be aware of their new reporting responsibilities.

Critical Alert for Residential Property Owners

For those with residential properties within these trust structures, immediate attention is needed due to potential Underused Housing Tax obligations, with filings due by April 30, 2024, for the years 2022 and 2023.

Exemptions from Filing

Certain trusts, such as those governed by RRSPs, RRIFs, TFSAs, graduated rate estates, and qualified disability trusts, remain exempt from these new filing requirements. The same applies to beliefs holding assets under $50,000, comprising only cash and marketable securities.

Detailed Reporting Requirements

The new rules require comprehensive information on all trustees, beneficiaries, and key persons. This includes their names, addresses, dates of birth, residency status, and taxpayer IDs like SINs or business numbers.

Submission Deadlines and Penalties

The deadline for the T3 Return is set at 90 days after the trust’s fiscal year-end. Non-compliance can result in significant fines, starting at $25 per day, with a cap of $2,500 annually. More severe penalties apply in cases of gross negligence.

Trust Account Number Requirement

All trusts must now have a Trust Account Number issued by the Canada Revenue Agency. Our team at MLL Accounting is ready to assist new filers in obtaining this number.

Utilizing CRA’s Online Services

The CRA’s “My Trust Account” portal is a key resource for managing trust information. Trustees can access this portal to appoint Avisar Business Advisory Group Inc. as their representative for accessing trust data.

Proactive Measures for Future Planning

Although it’s too late for adjustments for the 2023 year, trustees should consider reviewing their trusts for potential restructuring to simplify future reporting.

Action Steps for Trust Holders

If you have a trust that requires a T3 Return, especially a bare trust, reaching out to MLL Accounting for guidance is crucial to avoid substantial penalties.

Our Perspective at MLL Accounting

With these significant changes, staying informed and proactive is vital for our clients. Our team is here to navigate you through these new requirements and ensure your compliance.