The federal government’s initiative to enhance the transparency of trust ownership has culminated in new reporting rules for trusts. These rules, generally effective for taxation years ending on or after December 31, 2023, significantly expanded the number of trusts required to file an annual T3 trust return and the amount of information to be disclosed. This means that the filings due in 2024 (for the 2023 tax year) and 2025 (for the 2024 tax year) were the first to fall under this stricter regime. For 2026, it’s about embedding these practices for seamless, ongoing compliance.
Previously, many trusts, especially “bare trusts” or informal trust arrangements, were not required to file a T3 trust return unless they had income to report or made distributions. The new legislation has largely eliminated this practice, casting a much wider net. The core intention behind these changes is to provide the Canada Revenue Agency (CRA) with more comprehensive data on who owns and controls trust assets, aligning Canada with international standards on transparency. Understanding these foundational changes is key to preparing for your 2026 T3 trust return obligations.
Who Needs to File a T3 Trust Return Under the New Regime?
One of the most critical questions for trustees is: Who needs to file a T3 trust return under these expanded rules? The scope has broadened considerably. Generally, most express trusts resident in Canada and non-resident trusts that are currently required to file a T3 return must now provide additional beneficial ownership information annually.
The most significant change is the inclusion of bare trusts. A bare trust is an arrangement where the trustee holds legal title to property for a beneficiary, but the beneficiary has sole control over the property, and the trustee has no significant active duties beyond holding title. Common examples include:
- A child being on title of a parent’s home for probate planning purposes.
- A corporation holding legal title to real estate for an individual or a group of investors.
- Assets held in-trust-for (ITF) accounts for a minor, where the contributor is not the legal guardian.
Prior to these new rules, bare trusts often had no T3 filing requirements if there was no income or dispositions within the trust. Now, with limited exceptions, all bare trusts are required to file an annual T3 trust return, including the new Schedule 15 (Beneficial Ownership Information of a Trust).
Affected trusts generally include:
- Express Trusts: These are trusts intentionally created, usually in writing. This includes both inter vivos trusts (created during a person’s lifetime) and testamentary trusts (created by a will, such as a T3 trust return for deceased individuals’ estates that continue as trusts).
- Bare Trusts: As described above, these are now explicitly included.
- Certain other arrangements that may be deemed trusts under the law.
Some exceptions still exist, including:
- Trusts that have been in existence for less than three months.
- Trusts that hold less than $50,000 in assets throughout the taxation year (provided their holdings are limited to deposits, government debt obligations, and listed securities).
- Graduated Rate Estates (GREs).
- Qualified Disability Trusts (QDTs).
- Registered charities.
- Certain regulated trusts, like mutual fund trusts or master trusts.
However, it’s crucial to carefully examine the specific conditions for these exceptions, as they are narrowly defined. When in doubt, assuming a filing obligation exists is the safer approach until professional advice clarifies otherwise. The CRA T3 trust return guide offers further details, but its complexity often warrants expert interpretation.
Unpacking the New Disclosure Requirements for Your T3 Trust Return
The new rules don’t just expand who must file; they also significantly increase what information must be disclosed on the T3 trust return and its accompanying Schedule 15. Trustees are now required to report detailed information for each:
- Settlor: The person(s) who established the trust and transferred property to it.
- Trustee(s): The individual(s) or corporation(s) legally responsible for managing the trust.
- Beneficiary(ies): All persons who have a right to benefit from the trust, including those with contingent interests. This includes identifying beneficiaries whose identities are not yet known (e.g., unborn children or grandchildren who are part of a class of beneficiaries).
- Controlling Person(s): Any individual who can exert influence over trustee decisions regarding the appointment of income or capital of the trust. This could include a protector of the trust, if one exists.
For each of these identifiable individuals or entities, the following information is generally required:
- Legal Name
- Address
- Date of Birth (for individuals)
- Country of Residence
- Tax Identification Number (TIN), such as a Social Insurance Number (SIN) for individuals, a Business Number (BN) for corporations, or a trust account number.
This level of detail, especially for all potential beneficiaries and controlling persons, can be onerous to collect and maintain, particularly for older trusts or those with complex family structures. For a T3 trust income tax and information return, accuracy is paramount.
The Steep Cost of Non-Compliance: Penalties for T3 Trust Return Errors and Omissions
The CRA has underscored the seriousness of these new reporting obligations by introducing significant penalties for non-compliance related to the T3 trust return. Failure to file a T3 return, including Schedule 15, when required can result in:
- General late-filing penalties: These apply as they would to any late-filed tax return.
- Specific new penalties for failure to file the beneficial ownership information: A penalty of $25 per day of default, with a minimum penalty of $100 and a maximum of $2,500.
However, the most concerning penalty is the additional gross negligence penalty. If a failure to file the return (or the new information schedule) was made knowingly or under circumstances amounting to gross negligence, an additional penalty can apply. This penalty is equal to 5% of the highest total fair market value (FMV) of all property held by the trust during the relevant year, with a minimum penalty of $2,500.
Consider a bare trust holding a property valued at $1 million. A gross negligence penalty could amount to $50,000 (5% of $1 million). This underscores the critical importance of understanding these rules and taking proactive steps to comply. These penalties are designed to be a strong deterrent against non-disclosure.
Navigating the Maze: Practical Steps for Gathering Information and Filing Your T3 Trust Return
For trustees, especially those new to these comprehensive requirements, the task can seem daunting. Here are some practical steps to consider for your ongoing 2026 compliance:
- Identify if You Have a Filing Obligation: Determine if your arrangement constitutes a trust under the new rules. This is particularly crucial for informal arrangements that might now be considered bare trusts. This is the first step in understanding how to file a T3 trust return.
- Gather Trust Documents: Collect all relevant documents, including the trust deed, will (for testamentary trusts), any amendments, and any other agreements related to the trust.
- Identify All Relevant Parties: Meticulously identify every settlor, trustee, beneficiary (including contingent and unascertained beneficiaries), and any controlling persons associated with the trust.
- Collect Required Information: Systematically gather the personal information (name, address, DOB, jurisdiction of residence, TIN) for each party identified. This may require direct communication and can be sensitive. Explain why the information is needed (new CRA requirements).
- Maintain a Trust Register: Keep an organized record of all identified parties and their information. Update this register regularly as circumstances change (e.g., birth of a new beneficiary, change of address).
- Assess Asset Values: For the purpose of potential penalties, and general good governance, understand the fair market value of the trust’s assets.
- Establish a Filing Calendar: Note the trust’s year-end and the T3 filing deadline (generally 90 days after the trust’s year-end).
- File the T3 Return and Schedule 15: Complete the T3 trust income tax and information return and the new Schedule 15 accurately and file it with the CRA by the due date.
For bare trusts, which may have operated informally for years, gathering historical information about settlors or clearly defining all beneficiaries can be particularly challenging. Proactive effort is essential.
Staying Ahead of the Curve: Proactive Compliance for Your Trust Reporting Obligations
The enhanced trust reporting rules in Canada mark a significant step towards greater financial transparency. While the initial filings under these rules occurred for the 2023 tax year, the focus for 2026 and beyond is on diligent, ongoing compliance. Trustees and beneficiaries must understand their expanded obligations regarding the T3 trust return to avoid the substantial penalties associated with non-compliance.
This means moving beyond a once-a-year thought process for trust filings. It requires establishing robust systems for identifying relevant individuals, gathering and securely storing their information, and understanding the nuances of what must be reported to the CRA. The era of informal or unfiled trust arrangements is definitively over. By taking proactive steps now, you can ensure you meet your obligations accurately and on time, safeguarding the trust and its stakeholders from unwelcome CRA scrutiny.
Take Control of Your Trust Reporting with ClearWealth Accounting Advisors
Navigating the complexities of Canada’s new trust reporting rules, including the detailed requirements for the T3 trust return, can be overwhelming. Ensuring compliance while managing the intricacies of trust administration demands expertise and meticulous attention to detail. Don’t leave your trust’s compliance to chance.
Are you searching for a reliable solution to streamline your trust’s finances and reporting obligations? Look no further than ClearWealth Accounting Advisors. Our team is here to help you achieve financial clarity, ensure compliance, and provide peace of mind. Trust ClearWealth, and let us be the key to unlocking your peace of mind and ensuring your trust’s compliance.
