New CRA Rules to Report Beneficial Ownership of Trusts
With the Canadian tax season now behind us, this is a good time to go over the newly released CRA trust reporting rules that will come into effect for the 2023 tax year. On December 15, 2022, Bill C-32, which enacted the enhanced trust reporting rules, received royal assent. The new rules will require trusts that have a taxation year on or after December 31, 2023 to comply with the new reporting requirements.
New reporting requirements:
Under the new rules, certain inactive trusts that were previously exempt from filing a trust return (T3) are now required to file.
In addition, CRA will now also require the new informational reporting on an annual basis for the following trusts:
- All non-resident trusts that are currently required to file a T3 return
- Canadian resident express trusts
- Certain civil law trusts
- Bare trusts
New informational reporting:
All trusts that fall under the new reporting requirements must report the information below:
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Identification of Individuals Related to the Trust |
Information required |
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Settlors |
– Name – Address – Date of birth – Taxpayer identification number – Jurisdiction of resident |
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Trustees |
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Beneficiaries |
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A person who has the ability to exert control or override trust decisions of income or capital gain of the trust |
Exceptions
There are exceptions to the new reporting rules. The following trusts are exempt (non-exhaustive):
- Mutual fund trusts, segregated funds and master trusts;
- Trusts governed by registered plans (RRSPs, TFSAs, etc.);
- Employee life and health trusts;
- Lawyers’ general trust accounts;
- Graduated rate trusts;
- Qualified disability trusts;
- Trusts that qualify as non-profit organizations or charities;
- Trusts that have been in existence for less than 3 months;
- Trusts that hold less than $50,000 in assets throughout the taxation year.
Penalties
Under the new rules, failure to file the T3 return for the affected trusts, including the new schedule of additional information, will be subjected to the standard penalty of $25 per day plus an additional penalty of up to $2,500 or 5% of the maximum fair market value of the property held in the trust at any time in the year (whichever is greater) if the failure to file the tax return was made knowingly or due to gross negligence.
The recommended next step for taxpayers is to identify the status of their trust and to gather all the information that is required under the new tax reporting requirements. Also, it is a good idea to consult with a tax lawyer and / or accountant to determine if it makes sense to restructure or wind up the trust before the new requirements kick in to avoid additional annual administration fees for the new tax filings.
MCA Cross Border Advisors, Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The content of this presentation is for information purposes only and should not be construed as investment or financial advice. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.