The Canada Revenue Agency (CRA) has recently provided updated guidance to Canadian charities seeking clarity on maintaining compliance with the Canadian Income Tax Act ("ITA"), and, in particular, the new enhanced reporting obligations for trusts under the ITA.

On November 10, 2023, the CRA, by way of its "Charities Directorate" (the "Directorate"), issued guidance on filing requirements for charities administering internal trusts. In addition to the list of trusts already exempted from the new reporting requirements (which we have discussed in detail in our previous bulletin on this topic), the CRA will not require registered charities to file the T3 Return, Trust Income Tax and Information Return ("T3 Return") for internal trusts.

Internal trusts are those created when a charity:

  • receives property as a gift that is subject to certain legally enforceable terms and conditions; and
  • holds that property as the trustee of the trust.

Presently, a trust is generally required to file an annual income tax return if the trust has taxes payable for the year, or the trust distributes all or part of its income or capital to its beneficiaries. An inactive trust or a trust with no income tax payable for the year is generally not required to file a T3 Return. But for this guidance from the Directorate, such internal trusts would have been subject to additional disclosure obligations proposed in section 204.2 of the Income Tax Regulations. Notably, such disclosure would have included the (i) name; (ii) address; (iii) date of birth (for individuals); (iv) jurisdiction of residence; and (v) tax identification number (TIN) for the following persons in the year:

  • the settlor;
  • each of the trustees;
  • any person who has the ability (through the terms of the trust or related agreement) to exert influence over trustee decisions regarding the appointment of income or capital; and
  • each of the beneficiaries.

A false statement or omission on a T3 Return may result in significant penalties for non-compliance (again, discussed in our previous bulletin on this topic).

Earlier this year, CRA released a draft Schedule 15 to the T3 Return, "Beneficial ownership information of a trust", which details the format for reporting the foregoing information. Depending on the nature of the trust, and accordingly the number and nature of the beneficiaries of the trust, completing this form can potentially entail resource, logistical and privacy-related challenges. These challenges are amplified for charities that may be administering hundreds of trusts, and/or that already significantly rely on the efforts of volunteers.

Accordingly, guidance from the Directorate is a welcome relief for Canadian charities administering internal trusts that may have been concerned about a potential increase in time, costs and resources as a result of the new trust reporting rules.

However, in the guidance the Directorate provided a reminder that charities must be vigilant in continue to focus on accurately and thoroughly completing the filing of their annual T3010 Registered Charity Information Return. This return nonetheless includes information about all the property a charity holds, including internal trusts. In the guidance, the Directorate stated that a new version of form T3010 (version 24) is scheduled for release in January 2024; it is nevertheless integral for charities to always ensure that they are using the most up-to-date version of form T3010.

We will continue to monitor these significant updates to tax, trust and charity reporting obligations. Should you have any questions about fulfilling your obligations in this regard, please feel free to reach out to one of our lawyers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.