Trust Reporting in Canada: Understanding the Nuances of Federal Bill C-32 and Its Broader Impact 0

Posted On October 10, 2023, by Admin

Taxation laws in Canada have witnessed a myriad of changes over the years, with the recent Federal Bill C-32 emerging as a pivotal development. Officially known as the Fall Economic Statement Implementation Act of 2022 and given royal assent on December 15, 2022, Bill C-32 aims to implement the proposals from the 2018 federal budget. The legislation predominantly reshapes trust reporting rules, which have extensive ramifications for trustees and beneficiaries alike.

Key Provisions of Bill C-32

Three major areas undergo transformation through the new legislation:

  1. T3 Return Obligations: A significant change is the imposition of a T3 “Trust Income Tax and Information Return” filing obligation. Prior to this bill, not every trust had to file. Now, both specific resident trusts and certain non-resident trusts that were otherwise exempt must file a T3 return.
  2. Enhanced Transparency: The Bill ensures that trusts disclose a plethora of information about their operations, an endeavor to amplify transparency in financial matters. This encompasses details about trustees, beneficiaries, protectors, and settlors.
  3. Scope of Applicability: This legislation primarily targets resident trusts within Canada and certain non-resident trusts mandated to file a T3 return.

Motivation Behind These Changes

The heart of these amendments is ensuring a transparent financial landscape. By bolstering the collection of beneficial ownership information pertinent to trusts, the Canada Revenue Agency (CRA) can more robustly determine the tax obligations of trusts and their beneficiaries. Previously exempt trusts, including some inactive ones holding property, will now have to adhere to the new T3 filing regulations post-December 30, 2023.

Diving Deeper: Defining Terms

The new rules introduce or re-define several terms which trustees should familiarize themselves with:

“Bare Trusts”: These refer to trusts that function almost as representatives for its beneficiaries in relation to its assets. It’s anticipated that further guidelines on its application will be provided by the CRA. Examples may include Individuals who own 1% of their parent’s property with right of survivorship (may be considered a bare trust)

  • “Express Trust”: An express trust is typically formed by a settlor, either during their lifetime or after death in a will. Express trusts, along with non-resident trusts, fall under the new reporting regulations.

Detailing Information Requirements

Trusts under the new mandate will report:

  • Settlor: An individual or partnership who has transferred or loaned property to a trust before the taxation year’s end. There are specific cases where one won’t be designated as a settlor, especially if loans are dispensed at fair interest rates or transfers occur at fair market value.
  • Trustee: An individual or entity responsible for overseeing and managing the trust’s assets for the beneficiaries’ benefit.
  • Beneficiary: Those who stand to benefit from the trust’s provisions.
  • Protectors or Influencers: Individuals or entities wielding significant influence over trust decisions.

All these entities’ particulars, such as names, addresses, birth dates (for individuals), jurisdiction of residence, and taxpayer identification number (TIN), are obligatory.

Exceptions and Repercussions

Exceptions to these rules are in place for specific trusts like lawyers’ general trust accounts, non-profit entities, registered charities, and more, contingent on certain conditions. Non-compliance is a risky venture, leading to penalties. Transgressions like failing to file a return, omitting information, or presenting false information can invite stringent penalties.

Québec’s Harmonization Endeavor

Québec showcased its alignment with the federal trajectory in its 2021 provincial budget, indicating its plan to synchronize its tax system with the new trust stipulations.

The Trust Filing Deadline

While trusts typically have a filing deadline 90 days post the year-end, which for many is December 31st: however, 2024’s unique status as a leap year adjusts this. The filing deadline becomes March 30, 2024, instead of the usual March 31st.

A Call to Action for Trustees

For trustees, the introduction of these new regulations signals a clarion call to adapt and prepare. With the rules slated to be in effect post-December 30, 2023, an understanding and internalization of these changes become paramount. Trustees are encouraged to actively review trust documents, apply for trust account numbers, and continually monitor CRA’s evolving guidelines. While the landscape might seem complex, especially for those previously exempt from T3 returns, the essence of the regulations is to bolster trust and transparency in Canada’s financial realm.

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This blog is not meant to provide specific advice or opinions regarding the topic(s) discussed above. Should you have a question about your specific situation, please discuss it with your GBA advisor.

GBA LLP is a full-service accounting firm in the Greater Toronto Area, but we primarily service all of Ontario as well as the rest of Canada virtually, except Quebec. Our team of over 30, provides Audits and Reviews of financial statements, and Compilations of financial information, as well as corporate tax returns.  We provide specialized corporate tax and succession planning for small and medium businesses, in addition to general advisory services.

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