For 2021 and subsequent taxation years, non-resident trusts that currently file a T3 trust income tax and information return (“T3 return”) and express trusts (i.e. family trusts) that are resident in Canada will be required to provide additional information on an annual basis. As a result, these trusts will be required to file an annual T3 return even where one is not currently required.
Prior to the implementation of these new rules, an inactive trust or a trust with no income or tax payable, such as a trust holding a vacation property, may not have had a T3 return filing obligation. With the new rules, these trusts must file an annual T3 return unless the trust falls into one of the limited exceptions.
The following types of trusts are not required to provide the additional information:
- mutual fund trusts, segregated funds and master trusts;
- trusts governed by registered plans (i.e., deferred profit sharing plans, pooled registered pension plans, registered disability savings plans, registered education savings plans, registered pension plans, registered retirement income funds, registered retirement savings plans, registered supplementary unemployment benefit plans and tax-free savings accounts);
- lawyers’ general trust accounts;
- graduated rate estates and qualified disability trusts;
- trusts that qualify as non-profit organizations or registered charities;
- trusts that have been in existence for less than three months; and
- trusts that hold less than $50,000 in assets throughout the taxation year (provided that their holdings are confined to deposits, government debt obligations and listed securities).
The new rules require a trust to file a new schedule with its T3 return to report the identity of all trustees, beneficiaries and settlors of the trust, along with each person who has the ability (through the trust terms or a related agreement) to exert control or override trustee decisions over the appointment of income or capital of the trust. This is required even for trusts with no income to report. Further information may also be necessary.
For 2021 and subsequent taxation years, a penalty will apply if a trust that has to file a T3 return fails to do so or fails to provide the additional information about the beneficial ownership. The penalty will be equal to $25 for each day of delinquency, with a minimum penalty of $100 and a maximum penalty of $2,500. If a failure to file the return was made knowingly, or due to gross negligence, an additional penalty will apply. The additional penalty will be equal to 5% of the maximum value of property held during the relevant year by the trust, with a minimum penalty of $2,500.
The trust filing deadline is 90 days after the trust’s tax year-end. For any trusts that did not previously have a T3 return filing requirement, or of which SBLR may not be aware of, please let us know. For any questions or concerns with respect to these new rules and if they apply to you, please contact SBLR.