Finance Canada Proposes to Reduce the Scope of Enhanced Trust Reporting Rules
Posted in :
The federal government has announced proposed changes that could significantly reduce the number of trusts required to file under Canada’s enhanced trust reporting rules. These rules, originally expanded in 2022, created new filing obligations for many trusts — including simple “bare trusts” commonly used in everyday estate and property planning.
If these proposals become law, they will lighten the compliance burden for thousands of Canadians.
Background: What Changed in 2022?
In 2022, Canada introduced stricter reporting rules that required more trusts to:
- File an annual T3 Trust Income Tax and Information Return
- Complete Schedule 15, which discloses detailed information about trustees, beneficiaries, and settlors
These rules applied even to informal arrangements, such as a child being added to a parent’s bank account, or a family member holding property on someone else’s behalf.
The result? Many Canadians were surprised to learn they had a new filing obligation — even when no tax was owing.
What Is the Government Now Proposing?
The Department of Finance is proposing several key changes:
1. Reduced Filing Requirements for Bare Trusts
Bare trusts — which saw the most unexpected impact under the 2022 rules — would be largely exempt from filing until tax years ending after December 30, 2025.
This means no T3 filing is required for 2023 or 2024 for most bare trusts, unless specifically requested by the CRA.
2. Narrower Definition of a “Settlor”
The definition of “settlor” would be refined to avoid over-reporting. Only individuals who genuinely transferred property or value to the trust would need to be reported.
3. Expanded Small-Trust Exemption
Some trusts with up to $250,000 in assets may qualify for an exemption from filing, as long as they meet certain conditions and involve individual trustees and beneficiaries.
4. Additional Carve-Outs for Special-Purpose Trusts
More exemptions would be created for trusts that serve administrative or legal functions, such as:
- Certain lawyer trust accounts
- Trusts created by statute
- Trusts holding only small deposits or GICs
These changes recognize that these trusts pose low tax-avoidance risk and should not face complex reporting obligations.
Why This Matters
The original enhanced reporting rules created compliance challenges for a wide range of Canadians — from families using bare trusts for estate planning to small investors sharing ownership of property.
If the proposed changes move forward:
- Fewer trusts will need to file annual T3 returns
- Fewer individuals will need to disclose personal information
- The overall administrative burden will decrease, particularly for families and small business owners
However, some trusts may still fall within the updated reporting requirements, especially those with more complex ownership structures.
What Should You Do Now?
For most individuals and small businesses, these proposed changes are good news. But until the rules are officially amended, it’s important to:
- Confirm whether any trust arrangements you’re involved in still require reporting
- Keep proper documentation for any property held on behalf of someone else
- Consult a tax advisor if you’re unsure whether your situation qualifies for an exemption
As updates roll out, staying informed will help you avoid unnecessary filings — or penalties for missed ones.
