Updated: September 11, 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2024, the Department of Finance (Finance) released draft legislation that proposes changes to these rules, which were originally enacted on December 15, 2022.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.
As part of the recent proposed changes, fewer trusts may be subject to these additional reporting requirements. Specifically, Finance is proposing to broaden the list of exemptions from filing Schedule 15. Finance also proposes an additional year of relief for bare trusts to exempt them from filing T3 returns for the 2024 tax year. In addition, certain types of bare trusts are proposed to be exempt from the trust reporting requirements starting with the 2025 tax year.
Previously, the CRA announced that bare trusts aren’t required to file a 2023 T3 return, unless the CRA requests it, as one-time administrative relief. The CRA announced this relief on March 28, 2024.
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?.
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 one-time administrative relief for 2023 bare trust returns.
The following types of trusts aren’t required to file Schedule 15 (however, a T3 return is generally still required):
Determining whether your trust qualifies for an exception from filing Schedule 15 can be complex. Reach out to your advisor for help.
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).
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.
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:
1. 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.
2. Trusts that meet all the following conditions:
3. Lawyers’ and other professionals’ client-specific trust accounts that meet both of the following conditions:
4. 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.
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.
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