[By: Sean Grant-Young] – As we step into 2024, the landscape of trust management faces a transformative change. Beginning January 1, 2024, new trust reporting rules emerge, marking a significant shift towards enhancing transparency and compliance in trust management. These rules apply to all trust taxation years ending on or after December 31, 2023.
Detailed Breakdown of the New Reporting Requirements
Information Trustees Need to Disclose
The changes mandate trustees to provide detailed information about various parties involved in the trust. This includes:
- The settlor (the person who creates the trust)
- Each trustee
- Any individual with influence over trustee decisions regarding the distribution of income or capital
- Every beneficiary
For each of these parties, trustees are required to report:
- Legal name
- Address
- Date of birth (for individuals)
- Jurisdiction of residence
- Tax identification number (SIN/TIN or BN, as applicable)
Trusts Impacted by the New Rules
Express Trusts
Defined by the Canada Revenue Agency (CRA), express trusts are those deliberately created by a settlor, typically in writing. These include:
- Family trusts holding private business shares
- Trusts owning property (including personal property)
- Spousal trusts
- Alter-ego trusts
- Testamentary trusts that are not graduated rate estates
- Trusts deemed resident in Canada
Previously, many of these trusts were exempt from filing. However, with the new legislative changes, such exemptions no longer apply.
Trusts Exempted from the New Filing Requirements
Certain trusts remain exempt from these new filing rules, including:
- Trusts existing for less than three months at the year-end
- Trusts with assets under $50,000 throughout the tax year, holding specific types of assets
- Regulated trusts like lawyers’ general trust accounts
- Not-for-profit organizations or registered charities
- Mutual fund trusts and other specified trusts
Bare Trusts
Bare trusts, where legal and beneficial ownerships are separate, also undergo changes. These trusts are often involved in joint ventures, real estate holdings, and other similar arrangements. The new rules offer some leniency for bare trusts, exempting them from late filing penalties for the 2023 tax year.
Charitable Trusts
The Charities Directorate has clarified that charities managing internal trusts, which are created when a charity receives property under legal conditions, are not required to file T3 returns for these trusts.
Penalties for Non-Compliance
Trusts failing to comply with these regulations will face significant penalties. This includes fines for incomplete or inaccurate information, failure to file the required forms, or intentional or grossly negligent false statements or omissions. Penalties can be substantial, especially for trusts holding valuable properties or investments.
Source: https://www.bakertilly.ca/en/btc/publications/taxalert-2024-year-of-the-trust
