The 2023 T3 Trust Reporting Rules are going to bring yet another change to the constantly shifting world of tax regulations. Our team of specialists has been carefully studying the new rules and their implications for your family and business.
These rules, which were announced on December 15, 2022, will affect most personal trusts, including bare trusts and those holding private company stocks, and have come into effect starting December 30, 2023.
Regardless of their tax liability or distributions, these trusts are obligated to submit annual T3 income tax returns. The rules also demand more disclosure of information, and we hope to cover any questions you might have in the sections below.
Understanding 2023 Trust Reporting Changes
Reporting requirements for express trusts in Canada are set to undergo substantial changes with the Trust Reporting Rules of 2023. Looking back, these changes started in 2018, with the introduction of legislation to revamp trust reporting with the aim of peeling back layers of opacity, allowing for a clearer view of beneficial ownership. After December 30, 2023, these rules will require trusts to be more open and accountable. This could mean that trusts that were not required to file before may have to do so.
The changes affect personal trusts such as bare trusts and family trusts that hold shares in private companies. These trusts now have to file T3 income tax returns every year, even if they do not owe any taxes or have any distributions.
But the changes don’t stop at annual T-return filings. The rules now call for more disclosure of information. Additional details including the names, addresses, and taxpayer identification numbers of trustees, beneficiaries, settlors, and anyone who can influence trustee decisions.
Penalties for Non-complianceNon-compliance with the 2023 T3 trust reporting rules carries substantial penalties. Penalties for late filing could result in fines of up to $2,500. In addition, careless filing or false statements are subject to gross negligence penalties of at least $2,500 and up to 5% of the maximum value of the trust property.
Increased Disclosure RequirementsWe will soon have to follow the 2023 T3 Trust Reporting Rules, which will require a lot more information to be shared. We want to highlight that not all trusts find themselves under the new umbrella of requirements. Not-for-profit organizations and registered charities, along with regulated trusts such as lawyers’ general trust accounts, and several others, enjoy an exemption from these new reporting demands. Additionally, CRA has extended a hand of administrative relief to express internal trusts held by registered charities. The spotlight is now on certain express trusts that had previously enjoyed exemption, marking a significant shift in their filing obligations. This change specifically affects bare trusts and family trusts that hold private company shares, and they now need a lot of information that was not needed before.
Here’s a handy table to help us get a grip on these changes:
|What It Used to Be
|Whats It's Changing to
|Exemptions for certain express trusts
|Mostly personal trusts, including bare trusts
|No requirement for annual T3 filings
|Mandatory annual T3 income tax return filing
|More disclosure expected, with details of trustees, beneficiaries, settlors, and influencers
Disclosure of names, addresses, and taxpayer identification numbers are now mandatory per the regulations, effective 2023. The goal of these major revisions is to increase transparency in trust operations.
Filing Requirements for Bare Trusts
Alright, let’s shift our focus toward the particular filing necessities for bare trusts under the recently updated T3 Trust Reporting Rules. A crucial talking point is the introduction of new compulsory filing norms. Additionally, we will talk about the important exception where late filing penalties for 2023 T3 returns are not applied to bare trusts.
New Mandatory Filing Rules
Recent changes in legislation that took place in December 2022 have brought about an increase in reporting requirements for certain express trusts, particularly bare trusts. As a result, some trusts that were previously exempt now face new filing responsibilities. This is all part of the T3 trust reporting rules, reflecting the new compulsory filing rules set out by the Canada Revenue Agency (CRA).
- Starting now, trusts have to file an annual income tax return, no matter how much money they owe or how much money they give out.
- All parties participating in a trust, including beneficiaries, trustees, and others, are now required to disclose extensive information when filing trust returns.
- Not meeting these requirements could lead to penalties. This underlines the importance of understanding and following these new rules.
If you need assistance navigating these changes, we are here to help.
Late filing penalties for 2023 T3 returns are being waived for BARE TRUSTS ONLY
With regard to the new regulations regarding mandatory filing, it should be noted that only bare trusts are receiving temporary relief from late filing penalties for their 2023 T3 returns.
Even with the added responsibilities, bare trusts can breathe a sigh of relief knowing they won’t be penalized for late filing for the 2023 returns.
Important Dates and Deadlines
Don’t forget to jot down the significant dates and deadlines on your calendar! If you are associated with trusts that close their books at the end of the year in December, remember that their income tax return for 2023 must be submitted no later than March 30, 2024. As a valued member of our community, we want to make sure you’re up to speed with the T3 trust reporting rules.
In light of recent rule changes, the following should be considered by trusts as they wind down their fiscal year in December:
- Every year, trusts are now required to file a T return, regardless of their tax obligations or distributions.
- Starting in 2023, trusts are also required to file Schedule 15, a document that calls for detailed disclosure of trustee, settlor, and beneficiary information.
- The deadline to file for the 2023 tax year is March 30, 2024.
Remember that the majority of personal trusts are subject to these regulations and due dates. The new regulations aim to make the tax system more fair by making trusts more open and accountable. To avoid fines and other problems, stay vigilant, mark your calendars for these important dates, and submit your returns on time.