New Expanded Trust Reporting Requirements

Tax Updates


In 2018, the federal government first announced proposed legislation to significantly expand trust reporting requirements to increase transparency regarding beneficial ownership and to better assess the tax liabilities for trusts and beneficiaries.  A revised version of the rules was passed which will now require all Canadian Resident Trusts and Deemed Canadian Resident Trusts to file a T3 “Trust Income Tax and Information Return” starting with the 2023 taxation year (i.e. for those with taxation years ending on or after December 31, 2023). 

The breadth and scope of the new requirements are concerning as many trusts which were previously exempt from filing (i.e. those with no income during the year) are now required to file and disclose information about the settlor, trustees and beneficiaries. 

Also concerning is its impact on the Bare Trusts, an arrangement where a legal owner acts as an agent for beneficiaries, which may not have any income or activities throughout the year. It also captures investments held “In-Trust” on behalf of minor children unless such arrangements fall within the exceptions listed below.

The Canada Revenue Agency (“CRA”) will assess penalties up to $2,500 for late-filed returns. Where a person is found to knowingly or under circumstances amounting to gross negligence makes a false statement or omission, fails to file a return or comply with a demand to file, the penalty can amount to 5% of the maximum value of property.  For many Bare Trusts, who hold properties of significant value, the penalties could be substantial.

Additional Reporting Requirements

The new T3 Trust Returns will need to provide more disclosure and information, including:

  • The name, address, date of birth, jurisdiction or residence and taxpayer identification number (“TIN”), social insurance number (“SIN”) and business number (“BN”) for each person or entity who, in the year:
    • Is a trustee of the trust;
    • Is a beneficiary of the trust (whose identities are known or ascertainable with reasonable effort by the person making the return at the time of filing the return);
    • Is a settlor of the trust; or
    • Is a person who has the ability (through the terms of the trust or a related agreement) to exert influence over trustee decisions regarding the apportionment of income or capital of the trust (i.e., a “protector” of the trust).

These items above will be reported on Schedule 15 “Beneficial Ownership Information of a Trust” of the T3 return and it will be filed annually.

Exempted Trusts

There are very few trusts that will be exempted from this new reporting requirement. These Trusts are as follows:

  • The trust has been in existence for less than three months at the end of the year.
  • The trust (such as In-Trust account) holds assets with a total fair market value (“FMV”) of $50,000 or less throughout the year and the only assets held by the trust throughout the year were:
    • Cash;
    • Certain debt obligations;
    • Shares, debt obligations or rights listed on a designated stock exchange;
    • Shares of a mutual fund corporation;
    • Units of a mutual fund trust; or
    • Interests in a related segregated fund.
  • The trust is required under certain rules of professional conduct or Canadian/Provincial law to hold funds for the purposes of a regulated activity and the trust is not maintained as a separate trust for a particular client or clients.
  • The trust is a registered charity, a club, society or association.
  • The trust is a mutual fund trust, a related segregated fund trust or is prescribed as a master trust.
  • The trust is a graduated rate estate.
  • The trust is a “qualified disability trust”.
  • The trust is an employee life and health trust.
  • The trust is a special kind of trust, such as government funded trusts, established under settlement agreements.
  • The trust is under or governed by a DPSP, pooled RPP, RDSP, RESP, RPP, RRIF, RRSP or TFSA.
  • The trust is a cemetery care trust or a trust governed by an eligible funeral arrangement.

Bare Trust

A Bare Trust for income tax purposes is a trust arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings of the trust’s property.

A common example of the use of a Bare Trust arrangement is where real estate held for development has legal title of the property held by a trustee in trust for multiple beneficial owners.

A Bare Trust will normally have to file a T2 “Corporate Income Tax Return” based on its respective year end. However, a Bare Trust will also now have to file a T3 return. It is noteworthy that a Bare Trust’s year end will be December 31 irrespective of its corporate taxation year or that of a beneficial owner. As a result, all Bare Trusts will be required to file a T3 trust return for the 2023 taxation year.

Penalties for Non-Compliance

The penalties for non-compliance are as follows:

  • Basic penalty:   $25 per day (minimum $100) up to $2,500 for failure to file;
  • Gross negligence: 5% of the maximum FMV of all properties of the trust held in the year, with a minimum of $2,500 for failure to file or false statement or omission;

Please note that a Trustee(s) bears the responsibility for filing.

For example, an individual holding an “In-Trust” investment account for his children that has a fair market value of $100,000 in 2023 could face a penalty of $2,500 if the T3 return is not filed within 100 days of the deadline.  As well, CRA can assess an additional penalty of $5,000 penalty (i.e., $100,000 x 5% of the maximum value of the property held during 2023) if a trustee was found to be grossly negligent.

For another example, a corporate bare trustee holds legal title to commercial real estate with a fair market value of $100 million in 2023 could face a basic penalty of $2,500 but could also face additional penalty of $5 million (i.e., $100 million x 5% of the maximum value of the property held during 2023) if found to be grossly negligent.

Next Step

For T3 returns that are prepared by Williams & Partners LLP , our team will reach out to you and assist with filing the returns on a timely basis.  

If you have any “In-Trust” accounts, Bare Trusts, or other trusts with no activities or are uncertain of your filing requirements, please notify us as soon as possible.

The 2023 T3 return along with Schedule 15 is due on April 2, 2024.