Updated: November 18, 2024
If you have a trust, you may now be required to annually report additional information on the trust’s stakeholders—including beneficiaries, settlors, trustees, and certain other parties. Specifically, you may need to file T3 Schedule 15 “Beneficial ownership information of a trust” as part of your trust’s T3 return, for tax years ending on or after December 31, 2023. Note that Schedule 15 requires detailed information which can take time to gather and update each year.
In its last update on August 12, 2024, the Department of Finance (Finance) released draft legislation that proposes changes to these rules, which were originally enacted on December 15, 2022. It’s critical that you determine your trust’s reporting requirements each tax year as the non-compliance penalties are significant.
Some reporting relief
On October 29, 2024, the CRA announced that bare trusts aren’t required to file a 2024 T3 return, unless the CRA requests it. Previously, the CRA announced the same relief for bare trusts for 2023 T3 returns.
This announcement is in line with the draft legislation, which proposes to remove the 2024 bare trust filing requirements and permanently exempt certain types of bare trusts from reporting obligations. Even with this relief, most bare trusts would still be required to file T3 returns starting with the 2025 tax year.
In addition, the draft legislation proposes to subject fewer trusts to these additional reporting requirements. Specifically, Finance proposes to broaden the list of exemptions from filing Schedule 15 and narrow the definition of a “settlor” starting with December 31, 2024 tax years.
The CRA has not yet commented on whether they will administratively accept Finance’s other proposed changes.
For more details on the proposed relief for bare trusts, please refer to our article, Bare trusts: What are they and who has to report?.
What are the current reporting requirements on beneficial ownership?
Who must file Schedule 15?
Many trusts are required to file Schedule 15 annually as part of the T3 return, subject to certain exceptions. Specifically, the trust reporting rules require express trusts resident in Canada, as well as non-resident trusts deemed resident in Canada to report information on their beneficial ownership.
Generally, an express trust is a trust created with the settlor’s express intent, either formally or informally. As this definition is very broad, most types of trusts are express trusts.
Certain trusts that were previously not required to file T3 returns, including bare trusts, are now required to file T3 returns including Schedule 15, beginning with December 31, 2023 tax years. However, as previously mentioned, the CRA announced administrative relief for 2023 and 2024 bare trust returns.
What are the exceptions?
The following types of trusts aren’t required to file Schedule 15 (however, a T3 return is generally still required):
- Graduated rate estates
- Trusts that have been in existence for less than three months
- Trusts that hold a total fair market value (FMV) of $50,000 or less in assets throughout the tax year (provided their holdings are limited to deposits, government debt obligation, and listed securities)
- Mutual fund trusts, segregated funds, and master trusts
- Trusts governed by certain registered plans (e.g., registered retirement savings plans)
- Lawyers’ and other professionals’ general trust accounts where the funds are required to be held in trust under the relevant rules of professional conduct or federal or provincial law
- Qualified disability trusts, employee life and health trusts, and certain government-funded trusts
- Trusts that are registered charities (including internal trusts held by charities under CRA administrative relief)
- Trusts that qualify as non-profit organizations (NPOs). However, internal trusts held by NPOs must still file Schedule 15 unless they meet another exception on this list.
- Trusts whose units are all listed on a designated stock exchange
- Cemetery care trusts and trusts governed by eligible funeral arrangements
- Trusts under an employee profit sharing plan
Determining whether your trust qualifies for an exception from filing Schedule 15 can be complex. Reach out to your advisor for help.
What information is reported on Schedule 15?
If your trust has to file Schedule 15, you must provide additional information on the trust’s stakeholders, including their name, address, date of birth (where applicable), jurisdiction of tax residence, and tax information number. Such stakeholders include trustees, beneficiaries, and settlors of the trust, and anyone who has the ability (through the trust terms or a related agreement) to exert control or override trustee decisions over the appointment of income or capital of the trust (i.e., a protector).
For Schedule 15, a settlor includes an individual or entity that loaned or transferred property directly or indirectly to (or for the benefit of) the trust. There’s an exclusion available for arm’s length lenders where a reasonable rate of interest is charged. Similarly, there’s an exclusion for arm’s length transferors, provided the transfer was at FMV.
The meaning of “beneficiary” is expanded to include contingent beneficiaries, as well as unknown beneficiaries in certain cases (e.g., future children).
What are the non-compliance penalties?
T3 returns (including Schedule 15 where required) are due within 90 days of a trust’s tax year end.
Failure to comply with these requirements will result in significant penalties. If a trust fails to meet the filing deadline, it will be subject to a penalty of $25 per day, with a minimum penalty of $100 and a maximum of $2,500. Moreover, if a trust fails to file—either knowingly or due to gross negligence—the additional penalty will be the greater of $2,500 or 5% of the maximum value of property held during the year.
More details on the proposed relief
Expanded exemptions
Finance proposes to broaden the list of exemptions from having to file Schedule 15. Types of trust that won’t be required to file if the changes are enacted include:
- Trusts whose assets have a total FMV of $50,000 or less throughout the tax year (without restrictions on asset type). This would replace the current $50,000 exemption that limits the types of assets that can be held to qualify.
- Trusts that meet all the following conditions:
- All trustees and beneficiaries are individuals.
- Each beneficiary is related to each trustee.
- The total FMV of the trust property is $250,000 or less throughout the tax year, provided the trust’s holdings are limited to certain types of assets (such as deposits, listed securities, guaranteed investment certificates issued by Canadian banks, personal-use property, and debt obligations issued by the government or a publicly listed entity).
- Lawyers’ and other professionals’ client-specific trust accounts that meet both of the following conditions:
- The funds are required to be held in trust under the relevant rules of professional conduct or federal or provincial law, and
- The only assets held within the trust throughout the year is cash of $250,000 or less.
- Certain statutorily-created trusts requiring the trustee to hold the property for a specific purpose.
If enacted, these changes would be effective starting with December 31, 2024 tax years.
Narrowing of the definition of settlor
Finance proposes to narrow the definition of a settlor for Schedule 15 to exclude lenders. Specifically, a settlor would only include direct or indirect transferors of property to the trust. A new exception is proposed for transfers at FMV or pursuant to a legal obligation, regardless of whether the transferor is non-arm’s length or arm’s length.
If enacted, this change would apply for taxation years ending December 31, 2024 and onwards.
For help navigating the trust reporting rules and how the proposed changes may impact your trust, contact your local advisor or reach out to us here.
Disclaimer
The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Doane Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.
