Breaking News: T3 Returns Follow Old Rules, For Now

Evelyn Jacks

On January 14, 2022 the CRA confirmed that trust tax filings for trusts with year-end that falls on or after December 31, 2021 will not be required under new disclosure rules because legislation to enable them and the severe penalties for failure to file a new schedule has not been enacted into law.  For the time being, tax pros will follow the existing rules until supporting legislation receives Royal Assent. There are some interesting details within the proposed rules, which will likely affect next year’s returns.

First, the proposed beneficial ownership rules will not apply federally, but will apply with Revenue Quebec. Those taxpayers will need to make the disclosures on the 2021 trust returns.

The proposed federal rules will apply to certain express trusts resident in Canada as well as non-resident trusts and will help CRA better assess the tax liability for trusts and its beneficiaries. The intention, as mentioned, is to add a new schedule to the T3 return for more detailed information about those who control the trust.

The legislation, pending Royal Asset, proposed that for 2021 and subsequent taxation years, all non-resident trusts that currently have to file a T3 return would be required to file the new schedule. 

In addition, express trusts that are resident in Canada, with some exceptions, will have to provide additional information on an annual basis.  An express trust is generally a trust created with the settlor's express intent, usually made in writing (as opposed to a resulting or constructive trust, or certain trusts deemed to arise under the provision of a statute).

CRA wants to know the identity of all trustees, beneficiaries and settlors of the trust, as well as the names of every person 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 (also known as a protector).

The following types of trusts are not affected by the new rules to file the new Schedule:

• Trusts that have been in existence for less than three months
• Trusts that hold less than $50,000 in assets throughout the taxation year (provided that their holdings are confined to deposits, government debt obligations and listed securities)
• Graduated Rate Estates (GREs) and Qualified Disability Trusts
• Lawyers' general trust accounts
• Mutual fund trusts, segregated funds and master trusts
• Trusts governed by registered plans (i.e., deferred profit sharing plans, pooled registered pension plans, registered disability savings plans, registered education savings plans, registered pension plans, registered retirement income funds, registered retirement savings plans, registered supplementary unemployment benefit plans and tax free savings accounts)
• Trusts that qualify as non-profit organizations or registered charities

Stay tuned for more developments as we hear of them.

Additional educational resources: Learn more with two online certificate courses from Knowledge Bureau. Check out Filing T3 Returns, which will introduce students to the types of trusts that may be created in Canada and how each of them is taxed. Students will also learn how to prepare T3 returns as part of the case study exercises in the course. Or, enhance your credentials in Planning with Trusts, and receive a detailed primer that every financial advisor discussing tax, financial or investment plans with clients should have with consideration to trust taxation and estate planning options.

Looking for a live, virtual opportunity to learn more? The May 18, 2022 Virtual CE Summit features a blended learning opportunity that speaks to the Retirement & Estate Planning Update theme.