By Terrance S. Carter, Theresa L.M. Man and Jacqueline M. Demczur

In our Charity & NPF Law Bulletin No. 522 (“Bulletin No. 522”) dated June 29, 2023, we pointed out serious concerns relating to the new trust reporting obligations for internal express trusts held by charities based on communications we had had with senior officials at the Department of Finance (“Finance”) and the Charities Directorate at the Canada Revenue Agency (“CRA”). These same concerns were also reflected in an article by Tim Cestnick in The Globe and Mail on July 6, 2023.

In our Bulletin No. 522, we expressed the hope that the CRA would provide clarity on how these new trust reporting rules would apply to internal express trusts of charities. Since then, there have been some individuals in the charitable sector who have reported that they understand that Finance and the CRA may be looking to provide a solution to the new trust reporting rules for charities, either through an administrative exemption of some kind or possibly through an amendment to the Income Tax Act (“ITA”).

On this latter point, it should be noted that there was no amendment to this effect included in the Legislative Proposals Relating to the Income Tax Act and the Income Tax Regulations (Technical Amendments) released on August 4, 2023. In this regard, the ITA is proposed to be amended to expand the list of entities in subsection 159(1.2) that are exempt from the trust reporting rules to include a trust formed on the continuation of the Canadian Wheat Board. It was unfortunate that Finance did not take that opportunity to also exempt internal express trusts of charities from the new trust reporting rules.

On August 23, 2023, our firm inquired of senior officials at Finance and the CRA whether an announcement from either Finance or the CRA on express trust reporting requirements by charities was expected to be made and, if so, when. In response, we were advised by a senior official at the CRA that “the Charities Directorate has no updates to provide at this time.” To date, we have not heard back from anyone at Finance in response to our inquiry.

It would of course be a welcome development if the CRA and/or Finance were to announce that there will be an administrative exemption or a legislative amendment to the ITA forthcoming to exempt internal express trusts held by charities from the new requirement to file T3s. However, given that it is almost September 1^st, the clock is starting to run down.

As a result, charities and their professional advisors in the coming months may have to commence the necessary due diligence if they are going to be able to prepare T3s for express trusts that the charities hold after December 30, 2023 and then file T3s within 90 days thereafter (i.e., by March 30, 2024, since 2024 is a leap year). Charities that fail to file the required new trust returns could face serious penalties for each express trust, being the greater of $2,500 or 5% of the value of the trust property in general terms (please see Bulletin No. 522 for the details of these penalties).

As explained in Bulletin No. 522, considerable preparation time would be required by affected charities to ensure compliance with the new trust reporting requirements, including understanding the details and application of the new rules to them, reviewing their records to determine what express trusts mean, determining whether any of the internal trust funds held by them are in fact “express trusts”, ascertaining whether they have all the necessary information for all identified “express trusts” required to be set out in the new T3s, and considering what to do if they do not have the said information.

However, against this more ominous backdrop, it is hoped that Finance and the CRA will soon announce that a solution is in the works to exempt charities from the new trust reporting requirements that will circumvent the unnecessary and unwanted administrative burden of charities having to complete and file pointless T3s. If an announcement in this regard was to occur, it would be great win for the charitable sector and would also reflect very well on both Finance and the CRA for having thoughtfully listened to the legitimate concerns that have been raised by the charitable sector over the past number months.

​Read the August 2023 Charity & NFP Law Update