Upcoming Trust Reporting Requirements in Canada

Upcoming trust reporting requirements in Canada are changing. Before these new requirements come into force, it’s best to understand the new rules and plan accordingly. Ideally, you should allow you and your tax planning consultant sufficient lead time to acquire the needed information while understanding ways your obligations can be met.
This will help you avoid penalties that you may be subjected to in case of non-compliance. The upcoming trust reporting requirements apply to tax years ending on/after 30th December 2021.
For certain trusts, these new requirements may be demanding. For instance, an affected trust will have to offer information related to the protectors, settlors, trustees, and beneficiaries of a trust. If a trust fails to report the relevant information, it may expose itself to a plethora of penalties.
Let’s look at what’s new in the upcoming trust reporting requirements in Canada.

T3 filing requirement

Currently, a Canadian trust resident isn’t required to file an annual T3 income tax return – unless the trust disposes of capital property or tax is payable for the year by the trust. The Canada Revenue Agency (CRA) has offered additional administrative relief where just nominal income was allocated to resident beneficiaries or earned by a trust.

a tax consultant in Edmonton prepares his worktable

However, these substantial exceptions are limited by the upcoming trust reporting requirements. Now, most Canadian personal trust residents will be required to file an annual return—it doesn’t matter whether the trust has made an allocation or distribution during the year or not, or even if there’s no income tax liability at all. Nevertheless, certain exceptions are still offered for trusts which:

  • Hold less than $50,000 in assets throughout the year of taxation (given their holding are confined to listed securities, some debt obligations, and cash),
  • or

  • Have existed for less than 3 months at the years’ end.
  • Non-compliance penalties

    As of now, failure to file a T3 return within the due date will lead to penalties. This will continue to apply in the upcoming trust reporting requirements. Similarly, not filing and distributing any information slips related to trust will also be subjected to penalties that emerge as a result of late filing.
    However, the upcoming trust reporting requirements have expanded on the list of penalties. Suppose an omission, false statement, or failure to file a return was made by an individual intentionally or unintentionally. In that case, that individual may be subject to a penalty of more than $2,500 and 5% of the highest assets’ FMV of the trust throughout the year.