New trust reporting rules for 2024

Review of Trust Arrangements and New Trust Reporting Rules for 2024

To improve transparency and the collection of information about trusts, the federal government has introduced new reporting requirements for trusts (including bare trusts) that will apply to taxation years ending on or after December 31, 2023.  The new rules will require most trusts to file a T3 Trust Income Tax and Information Return (“T3 Return”) annually, including trusts that were not previously required to file a T3 Return.  If your trust is currently handled by our firm, we will be in contact with you regarding the expanded reporting requirements.

We are providing you with an overview of the new reporting rules, including the expanded filing requirements that are due by March 30, 2024 along with the affected types of trusts. Given the substantial penalties for non-compliance (equal to the greater of $2,500 or 5% of the highest total fair market value of all property held by the trust in the year), we strongly urge you to thoroughly review the enclosed.

The most significant change in legislation is that the new reporting requirements apply to bare trusts.  A bare trust includes an arrangement where the trust can reasonably be considered to act as an agent for its beneficiaries with respect to all dealings in all of the trust’s property.  Under the new reporting requirements such bare trusts will now be required to file a T3 Return. 

Some examples of where a T3 Return is now required:

  • a bare trustee corporation acts as the title holder to an asset for the benefit of someone else, such as holding the title to investments in a nominee corporation.  This arrangement is often used in real estate development or general estate and probate planning;
  • an individual holds an “in trust” bank or investment account for a child or a parent;
  • a parent is on title of a child’s home (without the parent having beneficial ownership) to assist the child in obtaining a mortgage;
  • a child is on title of a parent’s home (without the child having beneficial ownership) for probate or estate planning purposes only;
  • a general partner, typically a corporation, in a limited partnership arrangement is the title holder to the underlying assets of the partnership.  This arrangement is typically used in real estate investments, but may also include business operating partnerships;
  • an individual has purchased a property “in trust”, but the actual owner is not clearly identified.  This arrangement is commonly used with real estate purchases where the title holder or purchaser is not the true underlying beneficial owner of the property; and
  • one spouse is on title of a house or asset although the other spouse is at least a partial beneficial owner.

The above is not an exhaustive list and, therefore, legal counsel may need to be consulted with respect to identifying all informal trust arrangements and instances of a bare trust or nominee/agency relationships that may now require a T3 Return to be filed.

With this year being the first year of the new reporting requirements, there is a great deal of additional information that is required to be filed with the annual T3 Return.  A new form, T3 Schedule 15 (Beneficial Ownership Information of a Trust), must be completed.  The responsibility to do this rests with the trustees, hence our letter to you.

The new Schedule 15 must disclose information about the trust’s beneficiaries, settlors, trustees, and any other person who has the ability to exert influence over trust distributions of income or capital (often called a protector).

Trustee.  The trustees are noted in the trust deed, but there may have been changes since then. We need to know the trustees in place in 2023. Please consider if a trustee specified in the original trust deed has been replaced or if a person has been added.

Beneficiary.  The beneficiaries are noted in the original trust deed.  There may be new persons who have become beneficiaries (e.g. children or grandchildren born). These people need to be listed. If the beneficiaries are noted as a class (e.g. my children), then we need to know persons who are now part of that class.

Controlling person. Persons who have 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 (e.g., a protector).  If applicable, we have noted this on the attached schedule.

Settlor. We have noted the person or persons who have contributed property to the trust (as defined for this purpose) but need some additional information where indicated.

Should you have any questions, please feel free to contact us.

Thanks and Regards,

Sabounji LLP