New Reporting Requirement for Cross Border Trusts for the 2023 Taxation Year
December 12, 2023
In Canada, certain types of trusts are, and have been for many years, required to file a T3 Trust Income Tax and Information Return even if such trusts do not earn income. For taxation years ending on or after December 31st , these reporting rules are changing, which will require all “express trusts”, which is generally a trust created by a settlor during his or her lifetime, and non- resident trusts that currently are required to file a T3 Return, to report, with a T3 return, the name, address, date of birth, jurisdiction of residence and taxpayer identification number (TIN) for each settlor, trustee, beneficiary, and person who has the ability to exert influence over trustee decisions regarding appointment of income or capital of the trust. This information will be filed in a schedule attached to the trust’s T3 return.
For a lot of our clients who own real estate in the United States, we have recommended that they hold their properties in a structure that we call a Cross Border Trust (a “CBT”). For spouses who co-own U.S. property, we have recommended holding such property in two CBT’s, each holding a 50% interest. In previous years, the CBT had no obligation to file a T3 return in Canada, because this type of trust is not considered to be a “trust” under the Income Tax Act. As mentioned above, a new reporting rule came into effect which imposes a T3 filing obligation on all trusts. This change will now capture the CBT within these reporting rules, even though the CBT is still not characterized as a “trust” for tax purposes, starting for the taxation year 2023. This filing requirement on the Canadian side is mandatory even if the CBT and its beneficial owner did not earn income on the U.S. property. If we implemented a CBT structure for you in late 2022 and 2023, we have included this change in rules in your reporting letter.
Please see the below for additional details of the T3 filing obligation as applied to the CBT:
- Who has to file – anyone who has a CBT, or any bare trusts or trust arrangements that previously did not have the obligation to file T3 returns. If you have a CBT but no longer own any assets in it, this filing obligation will still apply to you, unless you take the necessary steps to dissolve the trust;
- What is the deadline for filing – 90 days after the end of the trust’s taxation year. For most people, this means 90 days after December 31, 2023;
- Who is exempt from filing in 2023 – CBTs or bare trusts set up on or after September 30, 2023 are exempted from filing for the 2023 taxation year. These trusts will need to start filing for the 2024 taxation year;
- How to file – Please contact and consult with your Canadian accountant so that T3 returns can be prepared for your CBTs or bare trusts;
- What is the penalty for non-compliance – $25 a day for each day past the filing deadline, with a minimum fine of $100 and a maximum fine of $2,500. If the failure to file is on purpose, or due to gross negligence, an additional penalty may be imposed;
If you have a trust that is not a CBT, and you are not sure whether the new reporting rules apply to your trust, or if you have a CBT/trust that no longer owns any assets and would like to discuss dissolving the trust, please reach out to consult with a lawyer at Altro LLP.