How to file your t3 trust income tax return

Canadian trust regulations have changed dramatically. Every trust in Canada must now file a T3 trust income tax return. This requirement started after December 30, 2023. Bare trusts that didn’t need to file before must now submit this vital tax document.

The T3 Trust Income Tax and Information Return does two things. It reports the trust’s income, gains, and losses. It also provides key details about beneficiaries and settlors. Trustees and executors need to submit this return within 90 days after the trust’s tax year ends. The stakes are high. Executors could face personal liability if they don’t file correctly. The trust might also face federal tax rates of 33%. Combined federal and provincial rates are a big deal as it means that they could hit over 50%.

Graduated rate estates (GREs) can benefit from lower tax rates. These rates apply up to 36 months after death. Schedule 15 has added new requirements. Trusts must now provide complete beneficial ownership information. This makes everything in the process more complex and critical.

This piece will teach you everything about the T3 trust return. You’ll learn how to get a trust account number and avoid filing mistakes that might trigger CRA attention.

What is a T3 Trust Return?

The T3 Trust Income Tax and Information Return (T3RET) is the life-blood of trust reporting in Canada’s tax system. Anyone responsible for managing a trust’s tax obligations needs to know everything about its purpose, parts, and requirements.

Definition and purpose of the T3RET form

The T3 Trust Income Tax and Information Return (T3 trust return) is a detailed tax document that trustees use to report a trust’s financial activities to the Canada Revenue Agency. This form works as both an income tax return and information return, giving it a unique dual role in Canada’s tax system.

The T3 trust return does more than just capture the trust’s financial position – it tells the trust’s complete story. Your T3 trust income tax return must report:

• Income earned by the trust (interest, dividends, capital gains, etc.)
• Deductions and losses incurred during the tax year
• Information about the trust’s structure and operation
• Details regarding beneficiaries who receive distributions
• Information about settlors who created the trust

Trustees use the T3RET form to file returns for testamentary trusts (created after someone’s death) or inter vivos trusts (created during the settlor’s lifetime). This document calculates the trust’s taxable income and makes sure beneficiaries’ distributions are reported accurately.

How it differs from the T3 slip

People often mix up the T3 trust return with the T3 slip, but they each play different roles in trust taxation:

The T3 trust return (T3RET) is the detailed tax document that trustees submit to the CRA. This return shows the trust’s overall tax position, including income, deductions, and taxes payable.

The T3 slip (Statement of Trust Income Allocations and Designations) goes to beneficiaries from trustees. This slip shows specific amounts allocated to each beneficiary, like designated income and tax credits. Quebec beneficiaries get an RL-16 form instead.

Here’s how it all works together:

1. Trustees file the T3 trust return with the CRA to report overall finances
2. The trust gives T3 slips to beneficiaries that show their share of trust income
3. Beneficiaries report their trust income on personal tax returns using T3 slips

The T3 return package also has the T3SUM Summary that gives a quick overview of the trust’s finances. Trustees submit this summary with the main T3RET form and required schedules. These documents work together to track trust income from start to finish at the beneficiary level.

Why trusts must file annually

The rules have changed. Not every trust needed to file annual returns before. Now, all but one of these trusts must file a T3 return each year for tax years ending after December 30, 2023.

This new reporting rule serves several key purposes:

The CRA can now check if everyone connected to the trust—trustees, beneficiaries, and related entities—follows tax rules. This transparency helps stop potential tax avoidance.

The annual filing supports new beneficial ownership reporting rules. Most trusts must now include Schedule 15 with their T3 return. This schedule gives details about each “reportable entity” linked to the trust, giving tax authorities more information.

Regular yearly reporting makes trusts keep good records of their finances. These records prove valuable during questions or audits later.

Missing these filing requirements can cost you. Failing to file a T3 return or leaving out required information about reportable entities leads to heavy penalties. Current guidelines set penalties at $34.83 per day, with a minimum of $139.34 and maximum of $3,483.40. Gross negligence in filing could cost up to 5% of the property’s maximum value that year.

These yearly filing rules create more work for trustees. In spite of that, they help make trust operations more transparent and ensure proper tax compliance across Canada’s financial world.

Who Needs to File a T3 Return

The rules about who needs to file a T3 trust income tax return can be tricky to understand, especially with new changes. The Canada Revenue Agency (CRA) has set clear rules for different types of trusts, and these rules have changed a lot for tax years that end after December 30, 2023.

Testamentary and inter vivos trusts

You need to know whether you’re dealing with a testamentary or inter vivos trust before figuring out your filing requirements.

A testamentary trust comes into being after someone dies, usually through their will or a court order about their estate. These trusts get special tax treatment and can qualify for graduated tax rates under certain conditions.

An inter vivos trust is created while the settlor is still alive. These trusts come in many forms like alter ego trusts, employee trusts, and health and welfare trusts. The filing rules are stricter for inter vivos trusts, and they usually pay tax at the highest rate.

Starting after December 30, 2023, express trusts (those created with clear written intent) must file a T3 return each year if they live in Canada and aren’t “listed trusts.” This applies to both testamentary and inter vivos trusts.

On top of that, any trust that earns taxable income must file if it owes tax, gets asked to file, or gives capital to beneficiaries.

Bare trusts under new rules

The rules for bare trusts have changed quite a bit. A bare trust exists when trustees hold legal title but must follow the beneficiary’s instructions without any power of their own.

Bare trusts didn’t need to file T3 returns before because beneficiaries reported income and capital gains on their personal tax returns. The rules changed after December 30, 2023, and bare trusts had to start filing annual T3 returns.

The CRA made things easier on October 29, 2024. They announced that “bare trusts will not be required to file a T3 return, including Schedule 15, for the 2024 tax year, unless the CRA makes a direct request for these filings”. This extends the break they got for 2023.

This break only lasts through 2023 and 2024. Trustees should get ready for possible new requirements after that.

Graduated rate estates (GREs)

GREs offer great tax benefits, and executors should learn about this designation. A trust becomes a GRE if it meets these conditions:

1. Death created the trust
2. No more than 36 months have passed since death
3. The estate qualifies as a testamentary trust
4. The T3 return shows the deceased’s social insurance number
5. The estate claims GRE status on its T3 return
6. No other estate claims to be this person’s GRE

GRE status lets the trust pay tax at the same graduated rates as individuals instead of the highest rate that most trusts pay. GREs also get special treatment for charitable donations that can save beneficiaries lots of tax money.

The GRE status ends 36 months after death, even if the estate continues.

Exceptions to filing requirements

Some trusts don’t need to file T3 returns. The CRA’s “listed trusts” face fewer requirements:

• Trusts less than three months old at year-end
• Trusts with assets worth less than CAD 69,668.01 (with specific asset limits)
• Some professional trust accounts required by conduct rules
• Non-profit organizations and registered charities
• Mutual fund trusts and segregated fund trusts
• Trusts with all units listed on designated stock exchanges
• Various registered plans (RRSPs, RESPs, RDSPs, TFSAs, etc.)
• Cemetery care trusts and eligible funeral arrangements

These “listed trusts” still need to file if they owe tax or sell capital property.

Filing requirements can be complex. The rules keep changing, so talking to a tax expert makes sense before preparing your T3 trust income tax return.

Understanding the T3 Filing Deadline

Meeting your T3 filing deadlines needs careful attention to specific timeframes and rules. Trustees and executors who know exactly when their returns are due can avoid getting hit with penalties and stay compliant with Canada Revenue Agency (CRA) requirements.

Standard 90-day rule after year-end

The basic timing rule for T3 returns is simple: you need to file your T3 trust income tax return within 90 days of the trust’s tax year-end. This deadline also applies to T3 slips, NR4 slips, T3 summaries, NR4 summaries, and any balance you need to pay.

Most Canadian trusts follow the calendar year that ends on December 31st. The filing deadline usually falls on March 31st of the next year. The CRA moves the deadline to the next business day if it lands on a weekend or holiday. To name just one example, the filing deadline for trusts with a 2023 calendar year-end moved to April 2, 2024, because March 30, 2024, was a Saturday.

This 90-day window stays the same whatever type of trust you have, though some trusts might have different year-ends. Trustees must send T3 slips to beneficiaries within this same 90-day period.

Common year-end scenarios

Different trust types have their own year-end situations that change their filing deadlines:

Calendar Year Trusts: Most trusts run on a calendar year that ends December 31st. Their T3 returns are due by March 31st of the next year.

Graduated Rate Estates (GREs): The tax year ends when you make the final distribution of assets while winding up a graduated rate estate. You must file the final T3 return and pay any balance within 90 days of this end date.

Other Trusts Being Wound Up: The same rules apply when you wind up an inter vivos trust or a testamentary trust (other than a GRE). File the final trust return and pay what you owe within 90 days of the trust’s tax year-end.

Mutual Fund Trusts: These come with special rules. Mutual fund trusts that chose a December 15 tax year-end have specific NR4 return filing requirements based on pre-loss restriction event year-ends.

The new trust reporting requirements affect most trusts with a calendar year-end, starting with the 2023 tax year and beyond.

Penalties for late or missed filings

The CRA hits hard with penalties if you miss T3 filing deadlines:

Returns with unpaid balances face a 5% late-filing penalty at the deadline. You’ll pay an extra 1% each month the return stays unfiled, up to 12 months.

Trusts with no taxes due still face penalties – CAD 34.83 daily, with a minimum of CAD 139.34 and a maximum of CAD 3,483.40.

The new enhanced reporting rules bring even tougher penalties. Trusts that must follow section 204.2 of the Income Tax Regulations and fail to file a T3 return (with Schedule 15) will pay the greater of CAD 3,483.40 or 5% of the trust’s highest total fair market value during the year. These penalties have no maximum limit.

You might face these penalties even if you’ve reported all income properly if the CRA finds gross negligence behind the failure to file.

The CRA understands these new rules are challenging. They’ve offered some relief for the 2024 tax year. Information returns normally due February 28, 2025, can be filed until March 7, 2025. T3 trust filers won’t face late-filing penalties or interest charges until May 1, 2025.

Knowing these deadlines and potential penalties helps you plan and file your T3 trust income tax return correctly and on time.

How to Apply for a Trust Account Number

You need a trust account number to file your T3 trust income tax return in Canada. This unique ID is required for all trusts that must report income tax. It helps the tax system work smoothly.

What is a trust account number (TAN)?

The Canada Revenue Agency (CRA) gives trusts in Canada an eight-digit number that starts with “T”. This number works like a Social Insurance Number that people use for their taxes.

You can find your TAN on these CRA documents:

• The front page of past trust income tax returns
• CRA assessment notices
• Other official CRA letters

Canadian trusts must get this number before they file a T3 return. Getting your TAN early gives executors and trustees several benefits. It makes sure tax payments go to the right account and lets you authorize others to work with the CRA.

How to apply using T3APP

The standard way to get a trust account number is through Form T3APP (Application for Trust Account Number). Here’s what you need to do:

1. Get the T3APP form from the CRA website or T3 Taxprep software
2. Fill out all needed sections with correct trust details
3. Make sure an authorized trustee signs the form
4. Add a copy of the signed trust document or will
5. Include a death certificate for testamentary trusts
6. Send everything to the right CRA tax center

The mailing address changes based on where the trust lives. Page 3 of Form T3APP has all the mailing details.

The CRA will mail your trust account number to the address on your form. You’ll need this number on all future trust documents.

Using CRA portals: My Account, My Business Account

The CRA’s Trust Account Registration service is the quickest way to get your number. You can get it right away through these secure online portals:

• My Account: Find the Trust Account Registration service in the ‘More Services’ menu
• My Business Account: Look under ‘More Services’ if you’re a business user
• Represent a Client: Check the main menu if you’re an authorized representative

The primary trustee needs to sign up for My Trust Account through Represent a Client first. This means you must:

• Create a RepID if you don’t have one
• Match your RepID name to your CRA trust account name
• Complete extra steps to prove who you are and your connection to the trust

After the CRA confirms you as the primary trustee, you can use My Trust Account to handle trust matters online.

Getting your trust account number is just the start of your trust reporting duties. With this ID, you’re ready to file your T3 trust income tax return.

Step-by-Step Guide to Filing a T3 Return

Filing a T3 trust income tax return needs careful preparation and attention to detail. After you get your trust account number, you can start the filing process.

Gathering trust and beneficiary information

You need to collect these important documents for your T3 return:

• Trust deed or will (for testamentary trusts)
• Financial statements showing the trust’s income and expenses
• Information on all financial transactions during the tax year
• Details for each trustee, settlor, and beneficiary
• Tax identification numbers for all reportable entities

Trusts under enhanced reporting rules need detailed information for Schedule 15. This includes names, addresses, dates of birth, jurisdictions of residence, and tax identification numbers for all reportable entities. You must include this information with your T3 return to avoid penalties.

Completing the T3RET and required schedules

The next step is to complete these required tax forms:

1. T3RET (T3 Trust Income Tax and Information Form) – This main return form reports the trust’s income, deductions, and tax calculations
2. T3SUM (Summary of Trust Income Allocations and Designations) – Shows all income allocated to beneficiaries
3. T3 slips (Statement of Trust Income Allocations and Designations) – Each beneficiary gets this form showing their allocated income
4. Schedule 15 (Beneficial Ownership Information of a Trust) – Most trusts must report information on all trustees, settlors, beneficiaries, and controlling persons

You can estimate the income if you haven’t received all relevant information slips. You’ll need to file for reassessment if differences appear between your estimates and later received information.

Using CRA-approved software or EFILE

Electronic filing requires CRA-certified tax preparation software. The T3 EFILE service runs from February 24, 2025, until January 30, 2026. You can file these return types electronically for tax years 2021 and later:

• T3RET – T3 Trust Income Tax and Information Return
• T3ATH-IND – Amateur Athlete Trust Income Tax Return
• T3M – Environmental Trust Income Tax Return
• T3RCA – Retirement Compensation Arrangement Part XI.3 Tax Return
• T3S – Supplementary Unemployment Benefit Plan Income Tax Return

Electronic filing isn’t possible if:

• You’re filing an amended T3 tax return
• The return is for a tax year before 2021
• The trust doesn’t have a trust account number
• The trust claimed bankruptcy during the tax year

Submitting electronically or by mail

Electronic submission requires Form T183TRUST (Information Return for the electronic filing of a Trust Return) for each original trust return you send. The trustee, executor, liquidator, or administrator must sign this form before transmission.

Paper filing goes to your location’s appropriate tax center. Tax preparers who file more than five trust returns of the same type must use EFILE. Penalties up to CAD 34.83 apply for each paper return above the limit.

Keep all documents used to prepare the return for six years. The CRA might ask to see them.

This process can be complex. BOMCAS Canada can help you prepare and file your T3 returns correctly the first time.

New Beneficial Ownership Reporting Rules

Tax legislation has brought the most important changes to trust reporting. Schedule 15 now forms a core part of T3 trust income tax return filing. These boosted disclosure requirements apply to taxation years ending after December 30, 2023.

Schedule 15 requirements

Your T3 returns must include Schedule 15 (Beneficial Ownership Information of a Trust). This gives the Canada Revenue Agency detailed information about the trust’s structure and participants. The schedule needs to be submitted with your T3 return, not separately.

All but one of these trusts are exempt from filing Schedule 15:

• Graduated rate estates
• Trusts less than three months old
• Trusts holding assets valued at CAD 69,668.01 or less (limited to deposits, government debt obligations, and listed securities)
• Mutual fund trusts and segregated funds
• Qualified disability trusts
• Registered charities and certain NPOs
• Trusts with units listed on designated stock exchanges

Information required for trustees, settlors, and beneficiaries

Schedule 15 needs specific details for each “reportable entity” connected to the trust. The reportable entities include trustees, settlors, beneficiaries, and anyone who controls trustee decisions (such as protectors).

Each reportable entity’s required documentation includes:

• Full name
• Complete address
• Date of birth (if you have)
• Country of tax residence
• Tax identification number in appropriate format (SIN, BN, TN, or foreign equivalent)

Part B of Schedule 15 needs separate completion for each reportable entity. The form allows you to indicate if the information remains unchanged from previous years without re-entering all details.

Bare trust reporting obligations

Bare trusts (where trustees act essentially as agents for beneficiaries) were part of the original reporting rules. The CRA has granted administrative relief. Bare trusts don’t need to file T3 returns or Schedule 15 for both 2023 and 2024 tax years unless specifically requested.

These requirements carry substantial penalties if not followed—CAD 34.83 per day (minimum CAD 139.34, maximum CAD 3,483.40). Cases of gross negligence may face additional penalties equal to the greater of CAD 3,483.40 or 5% of the trust’s maximum fair market value.

Common Mistakes to Avoid When Filing

Filing your T3 trust income tax return correctly saves time, money and helps avoid problems with the Canada Revenue Agency. Let’s get into some common pitfalls that trustees face.

Missing or incorrect trust account number

The trust account number is the life-blood of proper T3 filing. The CRA will reject your return immediately if you submit it with an invalid or missing trust account number. This eight-digit identifier needs the letter “T” before it and must appear correctly on every form and correspondence with tax authorities.

Error code 83431 identifies missing trust account numbers, while code 82805 shows invalid trust account numbers with incorrect characters. You can avoid this issue by verifying your trust account number and ensuring it appears correctly on all documentation.

Incomplete beneficiary details

Accurate and complete beneficiary information is significant. The CRA might apply penalties if T3 slips lack required recipient identification numbers.

Schedule 15 requires information about each beneficiary whose identity you can find out with reasonable effort. You must provide enough details to determine with certainty whether any particular person qualifies as a beneficiary for those whose identities aren’t known, such as unborn children.

Filing exemptions misunderstood

Trustees often assume their trust is exempt from filing requirements incorrectly. The confusion typically centers on:

• Bare trust exemptions (temporary for 2023-2024 only)
• Requirements for trusts holding minimal assets
• Obligations for non-resident trusts
• Special provisions for graduated rate estates

Note that exemptions have specific limitations – consult a professional if unsure. BOMCAS Canada can help prepare and file your T3 returns correctly.

Forgetting to include Schedule 15

Schedule 15 must accompany your T3 return for taxation years ending after December 30, 2023. This requirement can get pricey if overlooked, and you cannot submit the schedule separately.

The schedule needs annual filing even without changes from previous years, though you can indicate carrying forward previously filed information. Submit an amended T3 return or T3-ADJ request quickly if you spot errors after filing.

How BOMCAS Canada Can Help

BOMCAS Canada helps you handle T3 trust returns with their specialized expertise. Their services are designed to make this complex process simpler for you.

T3 return preparation and filing services

BOMCAS tax accountants stay up to date with Canadian tax laws that change frequently. This will give a solid foundation for your T3 trust returns to meet regulatory requirements. Their detailed approach starts with a consultation to understand your trust’s situation and collect important documents.

Their specialists carefully prepare every part of your T3 filing package:

• T3RET (Trust Income Tax and Information Return)
• T3 slips for beneficiaries
• Schedule 15 beneficial ownership reporting
• Supporting schedules and forms

BOMCAS can file your completed return electronically with the CRA and provide copies for your records. Their careful work helps you get the most tax benefits while meeting all filing requirements.

CRA audit support and correspondence

BOMCAS quickly helps when you get notices from the CRA about your trust. Their team gives you:

• Expert representation during CRA audits and reviews
• Quick solutions to compliance problems
• Support throughout the audit process
• Professional advocacy to protect your interests

You’ll get ongoing support from BOMCAS after filing your return for any questions that come up. This support helps address issues quickly and effectively.

Trust planning and compliance services

BOMCAS offers mutually beneficial alliances in trust planning that reduce tax liability while following regulations. Their advisors provide:

• Trust-specific tax planning advice
• Updates on new regulatory changes
• Estate planning assistance
• Support for testamentary and inter vivos trusts
• Help with graduated rate estate designations

Reach out to BOMCAS Canada to get your T3 returns done right the first time. Their team’s knowledge of Canadian tax law and focus on trust taxation makes them perfect for handling your trust’s tax needs.

Conclusion

Filing your T3 trust income tax return accurately is more significant than ever due to expanded reporting requirements. This piece explores everything in trust taxation in Canada – from filing obligations to new beneficial ownership disclosure rules.

Most trusts must file annual returns for taxation years ending after December 30, 2023. The 90-day filing deadline after your trust’s tax year-end stays the same. Some administrative relief exists for specific trust types like bare trusts in the 2023 and 2024 tax years.

Getting a trust account number is your first step toward compliance. The CRA will reject your return without this identifier. On top of that, it has become vital to collect complete information about trustees, settlors, and beneficiaries due to Schedule 15 reporting requirements.

Non-compliance can lead to severe penalties. Late filing penalties begin at 5% of unpaid tax plus 1% per month. Missing required beneficial ownership information can result in penalties up to 5% of the trust’s maximum fair market value. Your specific obligations based on trust type are vital to understand.

Good preparation helps you avoid common pitfalls despite complex filing requirements. Double-check these items before submission: valid trust account number, complete beneficiary details, all required schedules, and qualification for claimed exemptions.

Professional assistance is a great way to get expert guidance as Canada’s trust taxation continues to evolve. Tax experts help you meet compliance requirements and maximize tax benefits for your trust arrangement.

Note that your trust return documents your trust’s complete financial activities and structure. Careful attention to detail helps you avoid tax authority scrutiny while meeting your trustee’s fiduciary duties.

FAQs

Q1. How can I file a T3 trust return? You can file a T3 trust return electronically using CRA-certified EFILE software or by mail. Electronic filing is available for most trust returns from February to January of the following year. If filing by paper, ensure you send it to the appropriate tax center based on your location.

Q2. What are the consequences of filing a T3 trust return late? Late filing of a T3 trust return can result in penalties. For returns with balances owing, the penalty is 5% of unpaid tax plus 1% for each month it remains unfiled, up to 12 months. Even with no taxes due, there’s a minimum penalty of CAD 139.34, with a maximum of CAD 3,483.40.

Q3. Do I need to report all income on a T3 slip? Yes, you must report all income shown on a T3 slip, including interest, dividends, and capital gains, as it is taxable. Even if you don’t receive a T3 slip for amounts less than CAD 139.34, you’re still required to report this income on your tax return.

Q4. What information is required for the new Schedule 15? Schedule 15 requires detailed information about trustees, settlors, beneficiaries, and controlling persons. This includes full names, addresses, dates of birth, countries of tax residence, and tax identification numbers. It must be filed with your T3 return for most trusts.

Q5. Are there any trusts exempt from filing a T3 return? While most trusts must file T3 returns, some exceptions exist. These include trusts less than three months old, those holding assets valued under CAD 69,668.01 (with specific limitations), certain professional trust accounts, registered charities, and various registered plans like RRSPs and TFSAs.