New legislation was introduced in the Income Tax Act (Canada) (“the ITA”) and Income Tax Act Regulations (Canada) to require that certain trusts to file annually a T3 Trust Income Tax and Information Return (“T3 Return”) and to provide additional information about the trust. The new legislation applies to 31 December 2021 year ends and these trust returns are due 31 March 2022.
Currently, a trust is only required to file an annual T3 Return, if the trust has tax payable or it distributes all or part of its income or capital to its beneficiaries. Under the new legislation, a trust will be required to file a T3 Return annually, unless certain criteria are met. Under these broader requirements, many trusts that did not previously have to file a T3 Return are now required to do so.
Under the new legislation, new information that the trust must disclose on its T3 Return is name, address, date of birth (in the case of an individual), country of residence and Social Insurance Number (“SIN”), Business Number (“BN”) or Canadian Taxpayer Identification Number (“TIN”) for each person (includes corporations, partnerships and trusts) who, in the year,
- is a trustee, beneficiary or settlor of the trust; or
- has the ability (through the terms of the trust or a related agreement) to exert influence over trustee decisions regarding the appointment of income or capital of the trust. This would include, for example, a protector of the trust.
Certain trusts are exempt from the new reporting rules. Such exempt trusts include (but are not limited to) non-personal trusts such as mutual fund trusts or employee life and health trusts, trusts that are registered charities and non-profit organizations, and RRSPs, as well as a more limited group of personal trusts, such as qualified disability trusts, trusts that have been in existence for less than three months, and trusts that hold less than $50,000 in assets where the only assets held throughout the year are deposits, government debt obligations or listed securities.
In addition, the new legislation will impose a penalty for failing to comply with these new reporting requirements. The penalty is imposed on any person who fails to file a T3 Return or who knowingly or under circumstances amounting to gross negligence either makes or participates in, assents to or acquiesces in, the making of a false statement or omission in the T3 Return. The penalty imposed will be the greater of (a) $2,500 and (b) 5% of the highest total fair market value of all the property held by the trust in the year.
In situations where beneficiaries of a trust are unascertainable, the person filing the T3 return will be able to meet the disclosure requirements by adequately detailing the information required to determine who is a beneficiary of the trust on the Disclosure Schedule.
In order to ensure compliance with these new requirements, we are reviewing your file for any missing information that will be required under this new legislation. We will be contacting you over the coming months, should we require any prescribed information not currently in our files.
Please contact the writer if you have any questions in connection with the above.