Executive summary
The obligation to file a T3 return comes from both section 150 and regulation 204 of the Income Tax Act. These provisions have different scopes of filers but also require filing different types of returns.
High Contrast
The obligation to file a T3 return comes from both section 150 and regulation 204 of the Income Tax Act. These provisions have different scopes of filers but also require filing different types of returns.
Trusts may be required to file a “prescribed form” each year under section 150 of the Income Tax Act (Act) and/or regulation 204 of the Income Tax Regulations (Regulation). The types of trusts required to file under the two provisions differs. The regulation generally applies to more trusts, though starting with taxation years ending after Dec. 30, 2023, the types of trusts required to file a return under section 150 were increased. The Canada Revenue Agency (CRA) has prescribed the T3 return to fulfill both filing requirements despite the provisions’ inconsistencies in required filers, creating potential confusion on filing obligations.
The regulation requires almost all trusts to file a return. Exempted from filing are:
The CRA further narrows the scope of filers using its administrative authority.
Trusts are only required to file under section 150 for the taxation years where the trust either:
Listed trusts include:
All trusts exempted from the regulation are listed trusts apart from trusts governed by revoked deferred profit benefit sharing plans and trusts governed by deemed TFSAs.
Two categories of tax returns are created by the Income Tax Act:
Despite the use of the T3, the regulation and section 150 differ not only in who is required to file, but what type of return must be filed. The regulation is an information return filing requirement. On the other hand, section 150 is an obligation to file a return of income. Therefore, a trust could have an information return filing requirement but not an income tax filing requirement, and vice versa. Per the CRA, the T3 is both an information return and income tax return. The CRA affirmed this conclusion in View #2006-0196201C6.
The CRA publishes an annual Trust Guide setting out what trusts are expected to file a T3 return, as well as implicitly providing administrative exceptions to filing for trusts not listed. Both section 150 and regulation operate as legislative and regulatory authority to require filing for various trusts enumerated in the guide.
Penalties assessable will depend on whether the trust’s filing obligation arises from section 150, the regulation or both. Failure to file as and when required by the regulation incurs a failure to comply penalty, but this penalty is not applicable where the failure to file is penalized under another provision. Therefore, per View #2021-0895261E5, a delinquent filer with reporting obligations under both the regulation and section 150 would be penalized under failure to file return of income and/or repeated failure to file.
Grossly negligent reporting by trusts whose T3 obligation arises solely from the regulation is not subject to the new gross negligence penalty introduced when section 150 was expanded, but trusts required to report under section 150, except listed trusts, may face this penalty.