Pharmacy owners and pharmacists who have or are impacted by trusts should be aware of new trust reporting rules that have become effective as of December 30th, 2023. These changes introduce added responsibilities for trusts and filing T3 Trust Income Tax and Information Returns (T3 Returns); failure to comply could result in significant penalties.
Trust Definitions
What Is an Express Trust?
Express trusts are deliberately created by a settlor, usually in writing, with the intent to establish a trust, transfer property, and identify beneficiaries. Three key factors must be present for an express trust: the intent to create a trust, the property for the trust, and the identity of the beneficiaries. For pharmacists and pharmacy owners, this might involve scenarios where family trusts own shares of a family business or a family cottage.
What is a Bare Trust?
A bare trust under Canadian tax rules is a trust where the beneficiary has absolute and beneficial ownership of the trust property, and the trustee merely holds legal title without any discretion or control over the assets.
What is an Affected Trust?
Affected trusts are those that are now required to file a T3 Return annually under subsection 94(3), other than a listed trust, if it is an express trust, or in certain other circumstances. These are subject to taxes and reporting requirements.
Changes in Trust Reporting Rules
Generally, all trusts now must submit a T3 Return annually, including supplementary beneficial ownership details, unless specific conditions are satisfied.
Bare trusts, commonly used in personal and commercial arrangements like joint ventures and real estate holdings, are now included in these reporting requirements. This is a significant new change. Bare trusts will in most cases need to file an annual T3 Return. Several trusts may now find that they are affected and need to start submitting an annual T3 Return.
Trusts with assets exceeding $50,000, except in specific situations, need to report personal information to the Canada Revenue Agency (CRA) including details about the settlor, trustee, and beneficiaries associated with the trust. The expanded reporting framework aims to enhance transparency and accountability in the realm of trusts, ensuring comprehensive and up-to-date information is provided to regulatory authorities.
For example, a pharmacy owner with a family trust holding shares of the pharmacy business could now be required to file an annual T3 Return.
Other than listed trusts, any trust obligated to submit a T3 Return must provide supplementary beneficial ownership details by filling out the newly introduced Schedule 15, in the T3 Return package. Schedule 15 solicits information about all reportable entities, as outlined in the T4013 T3 Trust Guide (trustees, settlors, beneficiaries, and controlling individuals for the trusts), including any who may have qualified as reportable entities for only a portion of the year.
Exemptions
Although more robust reporting is required, there are some exemptions, namely listed trusts. This includes, but is not limited to, trusts that have been around for under three months as of December 31st, 2023, and trusts with a maximum asset value below $50,000, composed solely of money or certain marketable securities. These exempt securities include shares, debt, or rights listed on Canadian stock exchanges, mutual funds, government-guaranteed debt obligations, and more. Gold coins are not exempt. More information can be found on the Government of Canada website.
Bare Trust Reporting
Bare trusts are now subject to new reporting rules. This is particularly significant for pharmacists involved in joint ventures or real estate holdings structured as bare trusts.
When a corporation acts as the trustee for a bare trust, the corporation must file both a T3 trust return and a T2 corporate income tax return. Additional information, such as tax identification numbers and the names, addresses, dates of birth, and jurisdictions of tax residence for stakeholders, needs to be reported on T3 Schedule 15, Beneficial Ownership Information of a Trust. Schedule 15 captures information on all reportable entities, including trustees, settlors, beneficiaries, and controlling persons.
If there was a change in beneficial ownership during the tax year, this must be reported on Schedule 15, but previously reported information can be carried forward if there are no changes.
Pharmacists with family trusts or those engaged in complex trust structures may be impacted by these additional requirements.
Trust Account Numbers and Filing Deadlines
Before electronically filing a T3 Return for the first time, a trust account number must be obtained. This can be done through various CRA services, including My Account, My Business Account, or Represent a Client. Filing deadlines for T3 Returns are set at 90 days after the end of the calendar year. The trust account number must be included on your T3 Return and any correspondence or payments related to the trust.
Get help to ensure your filing is compliant. The experts at Pharma Tax make it easy; we specialize in helping people in the pharmacy industry, and stay on top of ever-changing tax regulations, to proactively help you stay in compliance. Navigating the requirements and exemptions for trusts is complex, but you can rest easy knowing that the Pharma Tax team has got your back.
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