In keeping with our tax theme this month, in this blog I look at trust reporting requirements.

Previously a trust that had no income or tax payable did not have to file a T3 return. In contrast, a trust was required to file a T3 return if tax was payable or if distributions of income or capital were made during the year.

For the 2021 tax year and beyond, however, increased income tax reporting requirements and disclosure for certain trusts were put into place by the Canadian government, reportedly as part of its effort to fight money laundering and tax evasion. Also, strict penalties were implemented for failing to abide by the new requirements if failing to comply was either done knowingly or because of gross negligence.

As a result, since 2021, all Canadian resident express trusts must file annual T3 returns, subject to some limited exceptions, whether the trust is active or not. Additionally, trustees must comply with greater disclosure requirements that include certain details about each settlor, trustee and beneficiary. The changes were explored in greater depth in the Cadesky Tax article found in the link above, including helpful tips for trustees in the lead up to the 2021 changes, one such tip being to consider winding up dormant trusts prior to January 1, 2021.

There is a bit of good news for any trustees that are eager to defer compliance with the reporting and filing requirements. The Canada Revenue Agency announced earlier this year that these requirements will not be administered until the supporting legislation receives Royal Assent. Despite this temporary reprieve, Cadesky Tax maintains its suggestion for trustees to consider winding up dormant trusts in the year, so reporting is required for only one year.

Best of luck during tax time!

Natalia Angelini