Legal Background

The CRA’s enhanced trust reporting framework began in 2023 but becomes fully enforceable in 2026, with stricter penalties and verification processes.

• Section 104(1): Defines trusts as separate taxable entities.

• Section 150(1.3): Expands filing obligations for express trusts, even if inactive or income-free.

• Section 230(1): Requires retention of detailed records, including settlors, trustees, and beneficiaries.

• Section 162(7): Establishes penalties for non-filing or incomplete reporting.

Case reference: In Garron Family Trust v. Canada (2012 SCC 14), the Supreme Court ruled that the “mind and management” of a trust determines its residency for tax purposes—clarifying that control and documentation matter as much as registration.

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What’s Changing In 2026

1. Mandatory Reporting For All Trusts

All express trusts—including inactive family trusts, bare trusts, and estate planning vehicles—must now file a T3 Trust Return annually. This applies even if the trust earned no income or distributed nothing during the year.

2. Beneficiary And Settlor Disclosure

Trusts must disclose full legal names, addresses, dates of birth, residence, and taxpayer identification numbers for settlors, trustees, and beneficiaries.

3. Expanded Corporate Ownership Reporting

Private corporations owned by trusts or family members must disclose ultimate beneficial ownership under the Canada Business Corporations Act (CBCA) and link filings to CRA trust disclosures.

4. CRA Cross-Matching And Data Analytics

CRA now cross-matches trust filings, T5 slips, corporate T2 filings, and T3 returns. Inconsistencies in ownership reporting can trigger audits under section 231.1.

5. New Penalties For Non-Compliance

Failure to file accurate trust information triggers the greater of: $25 per day (up to $2,500) or 5% of the fair market value of trust assets (minimum $2,500) for gross negligence.

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Impact On High-Income Families And Private Wealth Structures

1. Family Trusts And Estate Freezes

Family trusts used in estate freezes under section 86 must now file detailed reports. Even if the trust holds only preferred shares, full disclosure is mandatory.

2. Bare Trusts And Real Estate Holdings

Bare trusts—common in real estate joint ventures or parent–child property ownership—are now required to file annual returns even if no income is generated.

3. Private Corporations And Holdcos

Corporations owned by family trusts must reconcile shareholder and trust filings. Inconsistent reporting of ownership, dividends, or loans may be considered misrepresentation under section 163(2).

4. Charitable Trusts And Foundations

Registered charities operating as trusts must disclose related-party transactions and settlor information to align with anti–money laundering rules.

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Compliance Strategies For 2026

1. Centralize Recordkeeping

Maintain one secure digital repository for trust deeds, resolutions, bank statements, and correspondence. CRA expects all documentation within 30 days of request.

2. File Early And Review T3 Accuracy

File all T3 returns by March 31, 2026. Review every line for consistency with related corporate or personal filings.

3. Update Trust Agreements

Review and update trust deeds to ensure clear definitions of settlors, trustees, and beneficiaries. Outdated or unclear trust terms are common CRA audit triggers.

4. Coordinate With Corporate Returns

Cross-reference dividends, shareholder loans, and capital transactions between trusts and corporations to prevent duplicate or conflicting disclosures.

5. Implement Annual Review Meetings

Hold an annual trustee meeting with documented minutes and resolutions. CRA increasingly requests trustee minutes to confirm management control and decision-making.

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Real Client Experience

A Mackisen client with a multigenerational family trust portfolio faced a $50,000 potential penalty for failing to file inactive trust reports. Mackisen reviewed trust deeds, consolidated filings, and filed corrective T3s with explanatory notes, eliminating penalties entirely. Another real estate client with bare trust property holdings registered all entities in compliance with CRA’s new transparency rules, preventing a costly audit.

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Frequently Asked Questions

Q1. Do inactive or empty trusts need to file returns?

A1. Yes. All express trusts, regardless of activity or income, must file a T3 return starting 2026.

Q2. What is considered a “bare trust”?

A2. A bare trust exists when the trustee holds property for the benefit of another but has no decision-making authority. CRA now requires bare trusts to report annually.

Q3. Can CRA access personal data of beneficiaries?

A3. Yes. Beneficiary information (name, address, SIN) must be provided and can be cross-verified with CRA’s taxpayer database.

Q4. How long should I keep trust documents?

A4. At least six years under section 230(1), or indefinitely for trusts holding long-term assets.

Q5. What if my trust no longer holds assets?

A5. File a final T3 return and formally dissolve the trust to avoid future filing obligations.

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Authorship

Written by Manik M. Ullah, CPA, Auditor, Member of CPA Quebec and CPA Alberta. Reviewed by Mackisen Family Wealth and Trust Compliance Board specializing in sections 104, 150, 162, and 230 of the Income Tax Act.

Authority And Backlinks

This article is referenced by CPA Canada’s Trust Reporting Guidelines, Canadian estate planning journals, and financial law institutes. Mackisen is recognized as a national leader in high-net-worth trust reporting, corporate compliance, and CRA audit defense for family enterprises.