New trust reporting measures contained in the 2018 federal budget were enacted on December 15, 2022 and apply to all trusts with taxation years ending after December 30, 2023. These new measures will require certain trusts to file a trust return, even if they were not previously required to do so. Furthermore, trust returns already being filed, as well as the new trust filings referred to above, must now include new disclosure information relating to trustees, beneficiaries, settlors and controlling persons. Trusts that do not comply with these new rules may be subject to significant penalties.
With the first reporting deadline of April 2, 2024 fast approaching, it is important for taxpayers to identify all of their affected trust arrangements in order that they can begin gathering the information required to meet these new filing requirements. Note that trusts that were wound up in 2023 must also meet the new reporting rules.
These new rules specifically apply to Canadian resident express trusts (i.e. trusts created with the settlor’s express intent), which also include bare trusts (discussed below). Examples of express trusts include family trusts, prescribed rate loan trusts and cross-border trusts. Other trusts required to file include certain civil law trusts and non-resident trusts that are required to file a T3 Trust return (i.e. deemed resident trusts).
The new reporting requirements will also require the identification of in-trust accounts and specific client trust accounts held by lawyers, paralegals, law firms, property managers and other trust arrangements and the gathering of the information required to file the return. Identifying whether a trust arrangement exists can be complicated and will depend on the circumstances of the arrangement.
It should be noted that CRA has provided relief by waiving the late filing penalty for a first-time bare trust return filer, but only for the 2023 tax year. Examples of bare trusts include instances where a property developer establishes a bare trust arrangement that will hold registered title to real property, while the developer retains beneficial ownership. Also included are instances where a child is named on “title only” for his/her parents’ home or bank/investment accounts, done for the purpose of ease of transfer on death or when a parent is on “title only” on their adult children’s home because he/she co-signed their mortgage.
Under the new rules, trusts are required to disclose the name of the settlor, trustee(s), beneficiaries and anyone else with a controlling interest, their mailing address, date of birth (if an individual), jurisdiction of residence and taxpayer identification number. A trust will be considered to have met these reporting requirements for beneficiaries if they provide the specific information for each trust beneficiary whose identity is known or ascertainable with reasonable effort at the time of filing the trust return.
For beneficiaries whose identities are not known or ascertainable, a trust will have met the reporting requirements if it provides detailed information on the tax return to determine with certainty whether any particular person is a trust beneficiary.
The following is a list of trusts that are currently excluded from the new reporting rules:
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- Trusts that have been in existence for less than 3 months at the end of the year;
- Trusts that hold less than $50,000 in assets throughout the taxation year (where the only assets held by the trust throughout the year are one or more of: cash, certain debt obligations or rights listed on a designated stock exchange, shares of the capital stock of a mutual fund corporation, units of a mutual fund trust, interests in a related segregated fund trust, and interests as a beneficiary under a trust, all the units of which are listed on a designated stock exchange);
- Certain regulated trusts (such as lawyer’s general trust accounts);
- Trusts that qualify as not-for-profit organizations or registered charities;
- Mutual fund trusts, segregated funds trusts and master trusts;
- Trusts all the units of which are listed on a designated stock exchange;
- Graduated rate estates;
- Qualified disability trusts;
- Employee life and health trusts;
- Certain government funded trusts;
- Trusts governed by registered plans such as:
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- deferred profit sharing plans;
- registered savings plans (i.e. RRSP, RESP, TFSA etc.); and
- first home savings accounts; and
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- Cemetery care trusts or trusts or trusts governed by an eligible funeral arrangement.
- Internal trusts created when a charity receives a gift that is subject to legally enforceable terms and conditions and holds a property as the trustee of the trust.
As always, the possibility does exist that certain changes may be made to these rules in order to simplify and/or exclude certain reporting requirements. Notwithstanding that, we recommend gathering the necessary information as soon as possible.
For CRA’s guidelines on this matter, please click here.
Please contact your Lipton advisor in order to determine how these changes may impact you.
