Significant Changes to 2021 Trust Reporting Requirements

Annual T3 Trust Income Tax and Information Returns (T3) will be required for the majority of trusts, including those trusts which may have never previously filed.

The Federal Government has proposed legislation that significantly expands trust-reporting requirements. The purpose of the legislation is to assist the Canada Revenue Agency (CRA) in properly assessing income tax liabilities for trusts and their beneficiaries in addition to increasing transparency regarding beneficial ownership for trust taxation years ending on or after December 31, 2021. Initially proposed in 2018, this legislation has yet to become law. However, the Federal Government confirmed its intention to proceed with these measures in the 2019 Federal Budget. This change is significant because many trustees may never have been required to file a tax return for their trust, especially trusts created for an estate freeze. For taxation years ending on or after December 31, 2021, the new trust reporting tax measures will require most trusts to file a T3 Trust Income Tax and Information Return (T3) every year. Non-compliance will result in penalties.

Existing Trust Reporting Requirements

A T3 is generally required only if a trust has tax payable throughout the year or if it allocates part or all of its income and/or capital to its beneficiaries at any time during a particular taxation year. An inactive trust or a trust with no income or tax payable is not required to file a T3 return.

New Trust Reporting Requirements

Additional Trusts that Will Require a Return
The new legislation will require Canadian resident trusts to generally be required to file a tax return for taxation years ending on or after December 31, 2021. All trusts that are express trusts or, for civil law purposes, all trusts other than a trust established by law or by judgement will also have a requirement to file.

Exemptions from New Requirements
A trust that holds assets with a total fair market value that does not exceed $50,000 throughout the year is exempt from this filing requirement if the only assets held by the trust are one or more of:

  • Cash
  • Certain debt obligations
  • A share, debt obligation or right listed on a designated stock exchange
  • Mutual fund share
  • Mutual fund trust unit or
  • An interest in a segregated fund

Additionally, some specific types of trusts are exempt from this filing including:

  • A trust that is a registered charity
  • A graduated rate estate
  • A qualified disability trust and,
  • A trust that has been in existence for less than three months.

Specific Reporting Requirements
Trusts that are subject to the new reporting requirements will be required to report information for most parties involved with the trust. Each trust will have to report the following for each person who is a trustee, beneficiary, settlor, or protector:

  • Name
  • Address
  • Date of Birth
  • Jurisdiction of Residence
  • Taxpayer identification number (i.e.: social insurance number, business number, trust account number, foreign taxpayer identification number).

New Penalties
In addition to existing penalties, the proposed legislation provides the CRA with the ability to impose penalties of up to 5% of the maximum fair market value of all property the trust holds during the relevant year, with a minimum penalty of $2,500 to those who:

  • Fail to comply with a CRA demand to file a trust tax return or
  • Make a false statement or omission in the trust income tax return, either knowingly or due to gross negligence

These changes represent the most significant changes to trust reporting requirements in years. All trustees need to be aware of their new reporting requirements. If a trust no longer serves its intended purpose, it may be worthwhile to wind up the trust to avoid these new annual reporting requirements. If you have any questions about new trust reporting requirements, winding up a trust, or if you may benefit from a trust, please contact your Bateman MacKay Tax and Business Advisor.

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