Background

On December 15, 2022, Bill C-32, the Fall Economic Statement Implementation Act, 2022^[1] (the “Bill”), received Royal Assent. This Bill had three key measures: expansion of the small business deduction (SBD), housing affordability and amended section 204.2 of the Income Tax Act (“ITA”) to expand the filing requirements for trusts. In this article, the discussion will focus on the new trust reporting requirements for registered charities.

Under ITA, a trust is required to file an annual income tax return, the T3 Trust Income Tax and Information Return (“T3 Return”), within 90 days of the end of its tax year. However, there have been a number of statutory and administrative exceptions to this filing requirement^[2].

Registered charities hold designated funds which are considered trusts. Internal trusts are created when a registered 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^[3].

Currently, all the assets covered by those internal trusts are reported on by the registered charity through the T3010, Registered Charity Information Return (“T3010 Return”). It contains information about all the property a charity holds, including internal trusts.

Therefore, registered charities were seeking clarification from the Canada Revenue Agency (“CRA”) to continue compliance with the ITA. They were concerned about the potential penalties for non-compliance with the filing of T3 Return, and the potential increase in administrative cost.

As a result, the new trust reporting rules were delayed until January 1, 2024.

CRA Announcement

On November 10, 2023, the CRA by way of its “Charities Directorate” (the “Directorate”), made an announcement on the filling requirements for registered charities administering internal trusts.

The new trust reporting requirements set to start after January 1, 2024, will not apply to internal trusts held by registered charities.

Registered charities will not be required to file T3 Return for their internal trusts. They will continue filling their T3010 Return, which the CRA advised that a new version will be available starting January 2024.

It is essential for the registered charities to comply with the CRA and ensure that all returns are complete and accurate as they are available to the public.

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[1] https://laws-lois.justice.gc.ca/eng/AnnualStatutes/2022_19/page-1.html#h-3

[2] https://globaltaxnews.ey.com/news/2023-1920-canadas-new-trust-reporting-requirements-apply-for-first-time-to-2023-tax-year

[3] https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/whats-new.html