As mentioned in our December article Bare trusts: Proposed changes for 2024 and 2025, significant changes were made to trust reporting for the 2023 taxation year. This article will focus on the proposed changes for trusts that are not bare trusts and which are proposed to be effective for trusts whose fiscal year ended on December 31, 2024.
As noted in a previous article from our tax team New trust reporting requirements are coming, the main change to trust reporting for trusts (that were not bare trusts) in 2023 was to require trusts that did not have income to file returns as most of these trusts did not need to file a trust return previously. In addition, the Income Tax Act imposed beneficial ownership reporting requirements with respect to all beneficiaries, settlors, trustees, and fiduciaries for all trusts starting with December 31, 2023 year ends. This supplemental information was reported on Schedule 15 of the T3 Trust Income Tax and Information Return (T3 Return).
Certain exceptions were legislated for small trusts and special purpose trusts.
What’s new for 2024 trust reporting
For trusts that filed Schedule 15 of the T3 Return for 2023, they will only need to provide updates to the supplemental information in 2024 reporting. For example, if a beneficiary moved or if a trustee was replaced, these changes would need to be reported. However, if there has been no change in the information reported on Schedule 15, no new information will need to be provided and the corresponding box on Schedule 15 should be marked accordingly.
Proposed changes
The Department of Finance released draft legislation on several matters on Aug. 12, 2024, including updates to required trust reporting—most of which will apply to the create further exemptions from the beneficial ownership reporting requirements. It is important to understand the exemptions and restrictions.
For 2023, there was an exemption for filing and beneficial ownership reporting requirements for trusts that met the small trust exemption. As a re-cap, this included:
- trusts that had been in existence for less than three months as of the end of the tax year; and
- trusts that hold assets with a total fair market value that did not exceed $50,000 throughout the year, if the only assets held by the trust throughout the year were one or more of:
- cash;
- bonds, debentures or similar debt obligations of or guaranteed by the government of Canada, of a province or municipality or similar institutions;
- a share, debt obligation or right listed on a designated stock exchange;
- a share of a mutual fund corporation or a unit of a mutual fund trust;
- an interest in a related segregated fund trust; and
- an interest as a beneficiary under a publicly traded trust.
It is proposed for 2024 that there will be two small trust exemptions with different conditions.
Trusts with assets of less than $50,000
It is proposed that all trusts that hold assets with a total fair market value that does not exceed $50,000 throughout the year will be a listed trust and exempt from beneficial ownership reporting requirements in 2024.There will no longer be a restriction on the type of assets that can be held if the total value of assets in the trust is less than $50,000 throughout the year.
Trusts with assets of less than $250,000 that meet certain conditions
The conditions that must be met for the proposed 2024 $250,000 small trust exemptions are:
- each trustee is an individual;
- each beneficiary is an individual and is related to each trustee; and
- the total fair market value of the property of the trust does not exceed $250,000 throughout the year.
The only assets held by the trust throughout the year are one or more of the following:
- The list of assets above for the 2023 small trust exemption.
- A guaranteed investment certificate (GIC) issued by a Canadian bank or trust company incorporated under the laws of Canada or of a province;
- debt obligations issued by:
- a publicly traded corporation, mutual fund trust or limited partnership where the shares or units are listed on a designated stock exchange in Canada;
- a corporation the shares of which are listed on a designated stock exchange outside Canada; or
- an authorized foreign bank that are payable at a branch in Canada of the bank.
- A personal-use property of the trust, such as a cottage.
- A right to receive income on property described in all the categories listed above, including those listed for the 2023 Small trust exemption.
Other changes to trust reporting
There is currently an exemption from the beneficial ownership reporting requirements for trusts required under the relevant rules of professional conduct or the laws of Canada or a province to hold funds for the purposes of an activity that is regulated under those rules or laws, provided the trust is not maintained as a separate trust for a particular client.
For 2024, this exemption is expanded to exempt trusts that are for a particular client where the only assets held by the trust throughout the year is cash and the value of such cash does not exceed $250,000 at any time in the year.
In addition, an exemption will be established for trusts that were established for the purpose of complying with a statute of Canada or a province that requires the trustee(s) of the trust to hold property in trust for a specified purpose.
Finally, the proposed changes include a more restrictive definition of the term settlor to be more in line with what is commonly understood to be a settlor of a trust. Specifically, for purposes of the beneficial ownership reporting requirements, settlor is defined to be any person or partnership that has directly or indirectly, in any manner whatever, transferred property to the trust at or before that time, other than a transfer made by the person or partnership to the trust for fair market value consideration or pursuant to a legal obligation to make the transfer.
Penalties
As mentioned in our previous article New trust reporting requirements are coming, the penalties for failure to file trust returns, and failure to file Schedule 15 to report beneficial ownership, can be significant.
Changes, not law
It is important to keep in mind that the proposed changes discussed here have not been passed into law. With the prorogation of Parliament on January 6, it is unlikely that these changes will be passed into law by the March 31, 2025, filing deadline for most 2024 trusts. As such, we expect that the 2024 filings will be required to be made in line with the existing law. It is possible that the Canada Revenue Agency (CRA) may determine administratively to apply some of these proposed changes to 2024 filings, however, the CRA has not made any announcement to this effect as of the date of writing.
How BDO can help
If you have questions regarding required trust reporting for 2024, please contact your local BDO advisor today.
The information in this publication is current as of January 8, 2025.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.