In the 2017 federal budget, the government announced it was considering new ways to improve tax
reporting requirements for trusts in order to better collect beneficial ownership data. This has led to an
announcement in the 2018 federal budget that outlines the government’s intention to bolster the Canada
Revenue Agency’s (CRA) ability to audit trusts through the introduction of new reporting requirements. While
a notice of ways and means motion and technical notes have been introduced, there has not yet been specific
legislation with respect to these new reporting rules.
Currently, a trust is not required to file a T3 return if it has not earned any income or made any distributions in
the year. It should be noted that if a trust return is not filed, the three-year reassessment period never begins.
Effective 2021, new rules will require certain trusts to file an annual return irrespective of income or distributions.
As a result, certain trusts will be required to report information with respect to all trustees, beneficiaries,
and settlors of the trust.
Currently, the CRA can request all of this information when auditing a taxpayer. Under the new rules, the CRA will have access to this core information upfront. This will provide a wealth of data that can be used for analytical purposes, helping the CRA derive meaningful insights. In addition, the disclosure requirements will include identifying persons who can exert control over decisions of the trustees (as outlined in the trust agreement or related document) with respect to the appointment of income or capital of the trust.
Which trusts are not affected?
• Mutual fund trusts
• Trusts governed by a registered plan, i.e., RRSP, RRIF
• Lawyers’ general trust accounts
• General rate estate (GRE) trusts
• Qualified disability trusts
• Not for profit and charitable trusts
• Trusts that have been in existence for less than three months
The new provisions will broaden the penalty for non-compliance. The basic penalty for failure to file will
range from a minimum of $100 to a maximum of $2,500. Where a failure to file is done knowingly or is due to
gross negligence, an additional penalty equal to five percent of the trust property can be levied.
Non-resident trusts could also be affected. To the extent a non-resident trust is required to file a T3 return in
Canada, the trustees will be required to comply with the new disclosure requirements.
Included in the budget is $79 million of proposed funding over a five-year period, to assist the CRA with
implementing the new rules and to enhance their audit and administration associated with trusts. Ongoing
funding associated with an electronic platform for the processing of T3 returns is also promised in the
budget. As with any type of enhanced automation and data collection, the opportunity to aggregate data will
transform how the CRA works using its ever-expanding inventory of data assets. There is a good probability that
the concept of risk-based audits will expand to include trusts in ways not previously possible.
Edition 309 – May/June 2018
for Advanced Financial Education
This commentary is published by the Institute in consultation with an editorial board comprised of recognized authorities in the fields of law, life insurance and estate administration.
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Copyright 2017 ISSN 0382-7038
Contributors to this edition:
James W. Kraft, cpa, ca, mtax, tep, cfp, clu, ch.f.c.
Deborah Kraft, mtax, tep, cfp, clu, ch.f.c.