New Reporting Requirements for Trusts: Beneficial Ownership

Based on new legislation in Bill C-32, trusts with taxation year after December 30, 2023 and subsequent tax years, are required to provide additional information regarding beneficial ownership on an annual basis.

Under previous rules, inactive trusts or trusts with no income and tax payable were not required to file a return. A T3 return was required only if:

The trust had tax payable in the taxation year

The trust has disposed capital property

The trust has distributed partially or wholly income or capital to beneficiaries

Additionally, under previous rule, the trusts who were required to file a T3 return were not required to identify all “reportable entities” such as individuals, trusts, corporations, even if they qualified as a reportable entity for only part of the year.

“Reportable entities,” which include all the trust’s trustees, beneficiaries and settlors, as well as any person who has the ability (through the trust terms or a related agreement) to exert control or override trustee decisions on the appointment of the trust’s income or capital (e.g., a protector) – (Source: CPA Canada).

Under the new requirements, trusts must provide beneficial ownership information on a Schedule 15, filed along with a T3 return. Given the new rules, some trust who have never filed a T3 will have to file a T3 for the first time. If there is more than one beneficiary, multiple Schedule 15 forms need to be filled out and attached to the T3 return.

For example, assume an estate trust which was created for the estate of a deceased individual (John Doe) in March 2021 with beneficiaries Jack Doe and Jill Doe and their aunt Joan as the trust settlor. The trust didn’t have any income or distribution of assets during 2021 and 2022. No T3 returns were filed for both years. Assuming the same circumstances, the trust needs to file a T3 return and disclose the name of all beneficiaries and the settlor in Schedule 15 even if the trust did not have any tax payable or did not distribute any assets.

The additional information required to be disclosed for each reportable entity are:

Name

Date of birth (if an individual)

Taxpayer identification number (i.e., Social Insurance Number, trust account number, business number)

Address

Country of residence

Type and classification of entity

The following trusts are exempt from the new rule:

Trusts that have been established less than three months

Trusts that hold less than $50,000 in assets throughout the tax year (as long as they only hold deposits, government debt obligations and listed securities). The exclusion does not apply if the trust exceeded the $50,000 threshold at anytime during the tax year albeit briefly

Mutual fund trusts, segregated funds and master trusts

Trusts where the units are listed on a designated stock exchange

Trusts governed by registered plans, including proposed first home savings accounts

Employer profit-sharing plans

Lawyers’ general trust accounts

Graduated rate estates and qualified disability trusts

Trusts that qualify as non-profit organizations or registered charities

Employee life and health trusts

Certain government-funded trusts

Cemetery care trusts and trusts governed by eligible funeral arrangements

For further information or if you need to prepare a will, please visit the nearest Softron office or contact Softron at:

Telephone: 1-877-SOFTRON, Website: www.softrontax.com