Rules governing trusts were changed in 2022 and are set to take effect with additional reporting requirements in their income tax and information returns for taxation years ending after December 30, 2023. The changes affect express trusts and other arrangements where it can reasonably be considered to act as agent for its beneficiaries.
Background
Until these new changes, a trust was required to file an annual income tax return if it triggered one of the filing criteria, which included:
the trust had tax payable;
the trust had disposed of capital property or realized a taxable capital gain;
the trust received income, gain, or profit of at least $500 from the trust property;
the trust allocated income of at least $100 to any single beneficiary; or
the trust made a distribution of capital to one or more beneficiaries.
Additional reporting requirements
The new changes will require express trusts (trusts that are created with the settlor's express written or verbal intent), subject to certain exceptions, to file a T3 Trust Income Tax and Information Return every year, not just if it meets one of the above criteria for filing. Additionally, new regulations will require trusts (unless specifically exempted) to provide the name, address, date of birth, jurisdiction of residence, and Taxpayer Identification Number for each trustee, beneficiary and settlor and for any person who has the ability to exert influence over trustee decisions regarding the appointment of income or capital of the trust.
Exceptions from filing
Certain trusts are exempt from the additional reporting requirements including:
trusts that have been in existence for less than three months from the end of the year;
trusts that hold assets with a total fair market value that does not exceed $50,000 throughout the year and the only assets it holds are money; shares, debt obligations or rights listed on a designated stock exchange; shares of mutual fund corporations; units of a mutual fund trust, or an interest in a related segregated fund trust;
registered charities or a non-profit organization under p.149(1)(l); and
graduated rate estates
Penalties
New penalties have also been created to promote compliance with the new filing requirements. Failure to file a T3 Trust Income Tax and Information Return (including providing the new information requirements or knowingly making false statements or omissions in the return can trigger penalties of the greater of $2,500 and 5% of the highest total fair market value of all property held b the trust in the year.
What's next
These new rules and penalties take affect for trusts that have a year end of December 31, 2023 and the filing deadline for these trust returns will be March 30, 2024. Steps should be taken starting now to collect the new required information with respect to all trustees, beneficiaries, settlors and persons able to exert influence over trustee decisions over the allocation of income or capital of the trust.
Also, care will be required to identify trusts that were previously administratively exempt from fling a T3 Trust Income Tax and Information Return but are now required to begin filing. In these cases, the required information will need to be gathered and the trust return filed on a timely basis.
Consult with a CPA
Our firm is up-to-date on the new trust rules and filing requirements. Email us at admin@accountants.mb.ca or call us at 204-237-6053 to discuss your needs with one of our CPAs.