As we advised in Tax Tip 20-04 , significant expanded trust reporting rules were announced in the 2018 Federal Budget and were scheduled to apply for any trust’s taxation year ending after December 30, 2022. This date effectively implemented the enhanced reporting for trusts’ December 31, 2022, and subsequent taxation years. On November 3, 2022, the Department of Finance announced, it would defer the application of the new mandatory disclosure rules for trusts by one year, to years ending after December 30, 2023. As such, the proposed enhanced reporting requirements will not apply until a trust’s December 31, 2023 and subsequent year ends.
With this announcement, it appears that the policy that a trust is generally required to file a T3 return only if the trust has tax payable or distributes all or part of its income or capital to its beneficiaries during the year will continue to apply for a trust’s 2022 tax year. This means that, contrary to what was expected, inactive trusts or trusts that have no income or tax payable during the year should not be required to file a T3 return until their December 31, 2023 year end.[1]
As we are already in 2023, reporting is unavoidable for this year unless the trust is excluded from these rules. However, advisors and trustees may consider the following prior to the end of 2023, to avoid unnecessary filings after 2023:
- Advise trustees on these new requirements as soon as possible.
- Consider formally winding up dormant trusts or trusts that no longer serve a purpose prior to January 1, 2024;
- Consider beneficiary, trustee and protectors changes prior to 2024 but, remember, these changes could have significant income tax implications;
- Locate trust documents to identify each person that must be reported (e.g., settlors, trustees, beneficiaries and protectors). Additional care should be given in situations where the trust has one or more class of beneficiaries (e.g., corporate beneficiaries).
[1]Although there is some risk of penalty for not filing an information return.
