New Tax Filing Rules for Express Trusts and Non-resident Trusts

Marco Iampieri B.A., JD, M.B.A.

The new tax filing rules starting November 2021 affect certain types of trusts, specifically express trusts and non-resident trusts.  Trust returns will need to be filed for tax years ending December 31, 2021 by the tax filing deadline of March 31, 2022.  Highlights on what these trusts are used for follows:   

An express trust arises when the settlor clearly and specifically says that certain property is to be held in trust. Fundamental to the concept of an express trust is the existence of the three certainties, namely that the “(1) language of the alleged settlor must be imperative; (2) the subject matter or trust property must be certain; (3) the objects of the trust must be certain”: D.W.M. Waters, Law of Trusts in Canada, 3rd Edition (Toronto: Carswell, 2005) at page 132.

Although these rules are not yet Canadian law, according to Budget 2018 non-resident trusts subject to new reporting requirement rules must file a T3 return. Prior to 2021, non-resident trusts need not file a T3 return because they are generally not subject to Canadian taxation.

However, non-resident trusts may be deemed to be a Canadian resident in several circumstances: thus, subject to Canadian federal taxation under the Income Tax Act. Under the Income Tax Act at Part 1 – Income Tax, Division B – Computation of Income, Subdivision I – Shareholders of Corporations Not Resident in Canada at section 94, certain provisions deem a non-resident trust to be a resident in Canada for the particular taxation year, such as when a resident of Canada transfers property to the trust, a resident of Canada loans property to the trust, or a resident partnership transfers property to the trust (non-exhaustive list).

Non-resident trusts that are deemed to be a resident of Canada because of provisions under the Income Tax Act must file a T3 return and the non-resident trusts that are deemed to be a resident of Canada are subject to tax under Part 1 of the Income Tax Act on the trust’s worldwide income for the year.    

Proposed exemptions to the new filing rules are to include:

  • mutual fund trusts,
  • segregated funds and master trusts,
  • trusts governed by registered plans (i.e., deferred profit sharing plans, pooled registered pension plans, registered disability savings plans, registered education savings plans, registered pension plans, registered retirement income funds, registered retirement savings plans, registered supplementary unemployment benefit plans and tax-free savings accounts);
  • lawyers’ general trust accounts;
  • graduated rate estates and qualified disability trusts;
  • trusts that qualify as non-profit organizations or registered charities; and,
  • trusts that have been in existence for less than three months or that hold less than $50,000 in assets throughout the taxation year (provided, in the latter case, that their holdings are confined to deposits, government debt obligations and listed securities).

Additional Educational Resources:  Knowledge Bureau has two professional certificate courses available to train advisors on these measures:

Additional Educational ResourcesFiling T3 Returns. This course introduces the types of trust that may be created in Canada and how each of them is taxed. You will learn how to prepare T3 returns as part of the case study exercises in the course. Case studies include the filing of trust returns, slips, and slip summaries for trusts.

Use of Trusts in Tax and Estate Planning. This course provides a detailed primer in the subject area featuring common true to life scenarios because every financial advisor who discusses tax, financial or investment plans with clients should have a basic understanding of the taxation of trusts in order to discuss estate planning options with clients.

For new entrants to Knowledge Bureau professional education programs, enrollments in both courses this month are featured for an introductory tuition fee of only $995.  (Regular fees for the first course and only $100 more for the second). Use code ‘21NOV’ when you enrol online or call  1-866-953-4769 .