T3 Penalties - Get To Know the New Rules

The current rules

A Trust T3 return has to be filed annually if there are taxes payable or makes a distribution to beneficiaries. Personal information on trustees, beneficiaries, settlors or other persons are not required to be reported to the CRA.

The new 2022 rules

For trust taxation years ending on or after December 31, 2022, all non-resident trusts that currently have to file a T3 return and express trusts that are resident in Canada, with certain exceptions, will be required to report additional information as part of their T3 return each year. The draft legislation indicates that bare trusts (generally, where the trustee can reasonably be considered to act as an agent for the beneficiaries) will be subject to the new requirements.

New filing requirement

The new rules generally require the filing of a T3 return by express trusts that are resident in Canada even if it does not have any income to report. An express trust is generally a trust created with the settlor’s express intent, such as through a trust deed or a will. This includes trusts created to hold private company shares as part of an estate freeze, and trusts created to hold vacation or other personal property.

New reporting obligations

The Trusts must report the following additional information on trustees, settlors, beneficiaries and any persons having ability to exert control.

Name

Address

Date of birth

Jurisdiction of residence

Taxpayer identification number, such as social insurance number, trust account number, business number or taxpayer identification number used in a foreign jurisdiction

CRA aims to more effectively counter aggressive tax avoidance, tax evasion, money laundering, and criminal activities.

Penalties are Severe for Non Compliance

If any person knowingly or under circumstances of gross negligence makes a false statement or omission, fails to file a return for a trust, or fails to comply then the following penalties will apply.

The Greater of

$2,500

5% of the highest total fair market value of all the property held by the trust in the year

For trusts that hold high value assets, such as a vacation home or shares of a private corporation, the cost of non-compliance can be significant. Penalties for an asset worth $10 million in a trust could face a penalty of $500,000 dollars.

The current T3 penalties will still continue to apply. The penalty for the failure to file a T3 return is $25 per day with a maximum of up to $2,500.

We are advising all Tax Professionals to get acquainted with the new Trust Rules and to communicate to their clients the new Obligations.