As Canadians begin collecting tax documents and preparing for annual filings, more will be reporting on trust arrangements thanks to new reporting requirements from the Canadian Revenue Agency. In this month’s blog, we’ll summarize what a trust is, what the reporting changes are and who is affected at filing time. 

What is a Trust? 

In simple terms, a Trust is a legal arrangement to transfer assets from one person to another.  The Grantor is the identity who puts the assets into a trust managed by someone else, known as the Trustee, for the benefit of the Beneficiaries. These assets vary and may include cash, property, a business or a diversified investment portfolio. 

What to File? 

Starting with trust years ending in December 31, 2023, many trusts, unless specifically excluded, are required to file a T3 Trust Income Tax and Information Return, or T3 Return. This includes additional beneficial ownership information on an annual basis. This change in reporting requirements means that many trusts that did not previously have to file are now required to.

The new filing requirement applies even if no income is earned in the trust, or if income earned is reported by a financial institution to the account holder. 

In some instances, the new reporting requirement also applies to non-resident trusts that are  subject to Canadian tax under the Income Tax Act. 

In-line with other CRA reporting requirements, non-compliance could result in significant penalties. 

Which Trusts Are Affected?

Bare trusts where the trustee acts as an agent for a beneficiary but has no significant powers or responsibilities are most affected by the reporting change. Although a trustee’s only function may be to hold legal title to a property to which they have no beneficial ownership, these trusts arrangements are now specifically included in the new trust reporting rules. 

The change pertains only to trust reporting and does not change the income tax treatment of bare trusts, meaning those held by corporations are also required to file both a T3 trust return and a T2 corporate income tax return.

Express trusts are those intentionally created by a settlor, usually in writing, to transfer property to the trust with an identified beneficiary or beneficiaries. These are also impacted by the 2023 reporting requirements. Common examples include:

  • Family trust established to own shares of a family business or other property, such as a cottage
  • Spousal or common-law trust
  • Alter-ego trust
  • Testamentary trust that is not a graduated rate estate
  • Cash bank account held for a family member over $50,000.

Exemptions 

Any trust in existence for less than three months as of December 31, 2023, is not required to file a trust return for 2023. Cash and certain marketable securities held in trust under $50,000 (CAD) at any time in the year are also exempt. These marketable assets include: 

  • Shares, debt, or rights listed on a Canadian stock exchange or designated foreign exchange 
  • Share or unit of a mutual fund corporation or trust
  • A debt obligation guaranteed by the government or agent of a province, or by a municipality, or by the Government of Canada (such as a treasury bill), but not including deposits insured by the Canada Deposit Insurance Corporation
  • An interest in a related segregated fund trust

The tax implications of trusts can be complex, and individual situations vary. When preparing to meet with your accountant this tax season, consider all property and financial accounts you hold or are listed on. If you’re unfamiliar with trust accounts or wish to set one up for your estate, we encourage you to seek professional advice to ensure your trust strategy aligns with current tax regulations and your specific needs or goals. The team here at McNabb Lucuk LLP in downtown Grande Prairie is here to help guide you.