Understanding the T3 Trust Return in Canada: A Comprehensive Guide

What Is a Trust?

A trust is a legal arrangement where a person (the settlor) transfers property or assets to a trustee to manage for the benefit of one or more beneficiaries. Common purposes of trusts include:

• Estate planning
• Asset protection
• Charitable giving
• Managing and preserving family wealth

What Is a T3 Trust Return?

The T3 Trust Return is a form trustees use to report a trust’s income, gains, losses, and other financial details. Think of it as a "tax return" for trusts, similar to how individuals file their T1 tax return. Trustees are required to file this return annually for most trusts.

What Is a T3 Slip?

A T3 slip is a form provided to beneficiaries of the trust, detailing the income they received from the trust. Beneficiaries must report the information from their T3 slips on their personal tax returns. The trust itself uses this form to summarize income distributed to beneficiaries.

What Is Trust Income?

Trust income in Canada includes revenues generated by the trust’s assets such as:

• Interest income
• Dividends
• Rental income
• Capital gains
• Business income

The trustee either distributes this income to the beneficiaries or retains it in the trust, depending on the trust's terms.

How Is Trust Income Taxed?

Trusts in Canada are treated as separate tax-paying entities. Income retained by the trust is taxed at the highest marginal tax rate, typically 33% federally. Provincial rates vary, but in some provinces, the combined tax rate can be over 50%. Beneficiaries who receive income from the trust will pay tax on that income at their individual tax rates.

New Trust Reporting Requirements:

As of 2023, new reporting obligations aim to improve transparency. These changes include:

• Mandatory Filing: Most trusts must file a T3 return annually.
• Schedule 15: Trusts must now disclose additional beneficial ownership information about trustees, settlors, and beneficiaries.
• Bare Trusts: Although previously exempt from filing, bare trusts are now subject to new reporting rules, but these don’t apply for the 2023 tax year.

Eligibility Criteria for Filing a T3 Return:

A trust must file a T3 return if:

• It is an express trust (voluntarily created by the settlor).
• It has income to allocate to beneficiaries or other tax liabilities.
• It holds property subject to certain Income Tax Act provisions.

Additionally, trusts must file a T3 return if they have sold capital property, have a taxable capital gain, or distributed capital to beneficiaries.

What Is Schedule 15?

Schedule 15 is a form that must be filed alongside the T3 return, requiring detailed information on the trust's trustees, beneficiaries, and other controlling persons (those with influence over the trust’s decisions). Information required includes:

• Name and address
• Date of birth (if applicable)
• Social Insurance Number (SIN) or Business Number (BN)

Filing a T3 Return:

Here’s how to file a T3 return:

1. Deadline: T3 returns must be filed within 90 days after the trust’s tax year-end. Payment for any balance owing is due by this deadline.
2. Documents Needed: Gather trust documents, including the trust deed, financial statements, and T3 slips for beneficiaries.
3. Form Completion: Fill out the T3RET, T3SUM, and any other required forms such as Schedule 15.
4. Filing Method: File the return electronically using certified software or by mailing paper copies to the CRA.
5. Trust Account Number: First-time filers need to obtain a trust account number to file electronically.

Penalties for Late Filing:

Failure to file a T3 return by the deadline can result in penalties:

• 5% of the balance owing, plus 1% for each month the return is late.
• If no taxes are owed, there is still a penalty of $25 per day, up to a maximum of 100 days.

Understanding the T3 Trust Return requirements is essential for trustees to ensure compliance and avoid penalties. With the recent changes in place, being proactive and staying informed can make the process smoother for everyone involved.

Key Takeaways:



• T3 Return Filing: Most trusts are required to file an annual T3 return, including additional ownership information.
• Bare Trusts Exception: Bare trusts are generally exempt from filing a T3 return for the 2023 tax year unless requested by the CRA.
• New Trust Filings: Trusts filing for the first time need a trust account number to file the T3 return electronically.