As Revenu Québec reminds us on its website, a trust is the result of an act by which a person transfers, from his or her patrimony to another patrimony that he or she constitutes, property that he or she assigns to a specific purpose and that a trustee undertakes to hold and administer.
As a trustee, you have a number of obligations to assume, particularly with regard to taxes, deductions at source and assessments, as well as the disclosure of information.
Reminder of trust-related obligations
A trust’s information and income tax returns must be filed no later than 90 days after the end of its fiscal year. In most cases, a trust’s fiscal year corresponds to the calendar year, i.e. December 31.
It is essential that each trust have its own bank account. The trust must pay all its own expenses, i.e. bank charges and professional fees. That’s why it’s important for the trust to receive an annual dividend from a company in which it is a shareholder, so that it can cover its own expenses.
From 2023: new information reporting requirements (T3)
Recent changes to the Income Tax Act (Canada) have modified the information and income reporting requirements for trusts. Trust holders must now provide new information for all trusts with taxation year-ends after December 30, 2023.
The information to be disclosed includes :
- the originator (the settlor as well as any taxpayer who has made a loan to the trust, other than those who deal at arm’s length with the trust and whose loan bore interest)
- trustees
- beneficiaries (future beneficiaries, such as unborn grandchildren, must also be entered)
- persons who have the ability to exercise control over the trustee(s)’ decisions regarding the allocation of trust income or capital.
For each of these persons, we require their name, date of birth, address, country of residence, social insurance number, business number or trust account number.
Penalties for omissions or errors
If any information is missing, penalties may be imposed by the tax authorities. This penalty applies regardless of the extent of the error or omission in the required information.
For your information, here are the penalties:
- Federal: $25 for each day of default, with a minimum penalty of $100 and a maximum penalty of $2,500.
- in Quebec: $1,000 plus $100 per day from the 2nd day following the omission or default, up to a maximum of $5,000.
Consequently, for trusts that must meet these new requirements and for which there is missing information, trustees must be able to prove that they have acted with reasonable care to meet these new requirements.
All trusts, unless specific conditions are met, must file a T3 return for taxation years ending after December 30, 2023. New penalties have been introduced, and these can be significant. They amount to the greater of $2,500 or 5% of the highest fair market value of the property held by the trust at any time during the year, and are not capped.
Any questions?
The members of our tax team are available to assist you with your trust information and income tax returns to help you comply with tax requirements.
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