How Changes to the Trust Reporting Rules Will Impact Charities
Under the new trust reporting rules introduced in late 2022, certain charities and non-profit organizations (NPOs) will be required to file an annual T3 Trust Income Tax and Information Returns (T3 returns) for their “express trusts”. The T3 filing will be required for any express trusts held after December 30, 2023, and is due by March 30th, 2024. This trust filing is required to be submitted as of December 31, 2023, regardless of the organization’s fiscal year-end.
What are Express Trusts?
Charities and NPOs may have “express trusts” when they hold donated funds or property that is subject to restrictions by the donor. The Income Tax Act does not define an “express trust”, however, CRA accepts that “express trusts” include the following:
- Or other property received with specific restrictions on their use (even if no formal agreement or trust agreement was created)
Examples of Express Trusts:
- Scholarship funds
- Donor-advised funds
- Special purpose funds, as designated by donors
Do Express Trusts Have to File a T3 Return?
Exemptions to T3 reporting apply to the following:
- Funds or property received from other registered charities,
- Trusts with assets valued less than $50,000 throughout the year as long as they only hold deposits, government debt obligations and listed securities, or
- “Express trusts” established for less than 3 months at the end of the year (i.e. from the filingdeadline of December 30, 2023).
What Information is Required to File a T3 Return for an Express Trust?
The T3 filing information requires the following:
- T3 return to be filed for each individual or corporate donor with:
- Donor name
- SIN number, business and/or corporation number, as applicable
- Amount of contribution(s)
- Purpose for funds or property received (restriction or express trust)
What Happens If You Don’t File a T3 Return?
Any non-compliance with filing the T3 trust returns will result in a penalty equal to the greater of $2,500 or 5% of the maximum value of the property held during the taxation year by the trust.
Please note, this penalty is on a per “express trust” basis and is on top of the regular non-filing penalty of $25/day up to a maximum of $2,500.
How to Avoid T3 Filing Penalties?
To avoid non-compliance with the new regulations, we strongly encourage each charity and NPO to review their funding and potential restrictions on any contributions received. This will ensure that the required information is readily available by donors for the preparation of T3 returns.
Stay Updated on the Latest Changes with Hogg, Shain & Scheck
Currently, there is limited insight available from CRA regarding any administrative exemptions from filing T3s for internal “express trusts”. Hogg, Shain & Scheck will continue to monitor any communication on changes to the trust reporting rules and advise of any developments. For further information, please consult with one of our accounting professionals.
More information on the new T3 Schedule 15 – Beneficial Ownership Information of a Trust can be accessed here.