The new trust reporting rules’ potential impact on internal charitable trusts, endowments, and donor advised funds

( Disponible en anglais seulement )

28 septembre 2023 | Hillary Linden, TEP, Gwenyth Stadig, Adam Parachin, Troy McEachren, M. Elena Hoffstein

The Canada Revenue Agency has clarified on November 10, 2023 that charities are not required to file T3 information returns for internal trusts. Please see our November 10, 2023 Social Impact Newsletter article for more information.


We have previously written about the new trust reporting requirements with a focus on how they may affect charities in the Social Impact newsletter. Here we expand on that article to provide a more technical analysis of the issues.

Technical overview

Bill C-32 added new trust reporting requirements to the Income Tax Act (the “ITA” or the “Act”) which will come into force for trusts having a taxation year ending after December 30, 2023. These new rules require trusts, including bare trusts, to file an annual income tax return, being the T3 Trust Income Tax and Information Return, within 90 days from the end of the year. Of particular interest to registered charities in Canada will be the new subsection 150(1.2) of the ITA.

Currently subsection 150(1) of the Act establishes the general rule that taxpayers must file returns of income, subsection 150(1.1) establishes limited exceptions to the reporting requirement under subsection 150(1), and the exceptions listed under subsection 150(1.1) relieve certain trusts of the obligation to file returns of income.

New subsection 150(1.2) further narrows the scope of the trusts that are relieved. New subsection 150(1.2) provides that the exception under subsection 150(1.1) only applies to the trusts specifically listed/described therein (i.e., listed/described in subsection 150(1.2)).

What this all suggests is that trusts, which are currently relieved of the reporting requirement under subsection 150(1), will be relieved of the reporting requirement if they both:

  1. meet the criteria of subsection 150(1.1); and
  2. are listed/described in subsection 150(1.2).

Trusts that are registered charities meet the criteria of subsection 150(1.1) and are specifically enumerated in new paragraph 150(1.2)(d). Therefore, a registered charity established in the legal form of a trust does not have to file a T3 trust income tax return under the new trust reporting rules.

However, there is no corresponding exemption for express trusts that are held by charities. A donation to a registered charity may be made in the legal form of a trust. For example, a registered charity may receive property from a donor to be held in trust for certain charitable purposes. These trusts are sometimes called “internal trusts” because they are not regarded as separate from the registered charity acting as the trustee of the trust, at least not for income tax purposes. Based on the current wording of the new legislation, it appears that the new trust reporting requirements may apply to internal express trusts held by charities.

Internal express trusts

While the term “express trust” is not defined in the ITA, it is established law that an express trust is one that is intentionally created by the settlor (that is, the person creating the trust). The intention may be expressed orally,[1] by deed or by will. An express trust must be created in such a way that it meets the following requirements:

  • The expression of the settlor to create the trust must include language which clearly shows his or her intention that the recipient should hold on trust (as opposed to language suggesting that the recipient is to take absolutely with a mere moral obligation with respect to how to deal with the property). This requirement is known as “the certainty of intention to create a trust.” The words “in trust” are not necessarily required to demonstrate an intention to create a trust;
  • The property which is to be subject to the trust must be so clearly described that it can be definitely ascertained;
  • The objects of the trust (the beneficiaries or the purposes) must be so clearly described that they can be definitely ascertained; and
  • The property must actually be transferred to the trustee(s) by means of a true gift.

In some cases, it may be obvious that an organization holds property on trust. In other cases, more analysis may be needed. For those cases requiring more analysis, the organization must determine whether the settlor gifted funds to the charity or non-profit either:

  1. with the intention that the organization hold the property on trust, or
  2. with the intention that the property belongs to the organization absolutely, albeit with a non-binding but moral obligation on the organization to deal with the assets in a certain way.

Whenever gifts have a condition attached to them, one should determine whether the condition amounts to trust terms or a mere wish as to how the property should be dealt with. This is particularly the case for endowment funds and donor advised funds which, more often than not, have conditions attached to them.

Endowment funds

At a basic level, gifts to charities can take the form of restricted gifts and unrestricted gifts. Unrestricted gifts may be used by the receiving charity for any of its purposes or activities. Restricted gifts, on the other hand, may only be used in accordance with their restrictions. An endowment gift is a special type of restricted gift because its purpose is usually to be a permanently restricted fund to generate income for the use by the organization. Thus, an endowment fund is usually intended to be held in perpetuity. However, an endowment fund can also be created for a fixed term until either a specified time period elapses or a specified event occurs. If the gift contains any restrictions, which is usually the case and which will depend on the terms of the instrument establishing the gift, and if there is a settlor who intends for the gift to be held on trust (as determined by the terms of the gift), charities should be prepared to have to file a separate T3 for the trust.

Donor advised funds

Donor advised funds are funds created by an initial gift from a donor, which may or may not have restrictions. The donor then has the role of making recommendations to the charity about the distributions of the assets in the fund to other charities. If the initial gift of capital to the donor advised fund contains any restrictions, which will largely depend on the terms of the instrument establishing the gift, and if there is a settlor who intends for the gift to be held on trust (as determined by the terms of the gift), charities should be prepared to have to file a separate T3 for the trust.

Of relevance is that most trusts with assets with a total fair market value that does not exceed $50,000 throughout the year will be exempt from the reporting requirement by application of subsection 150 (1.2) of the Act.


While much of the above discussion is equally applicable to Quebec’s civil law express trusts, the Civil Code of Québec (the “CCQ”) contains a restriction that would prevent most charities from acting as a trustee of an express trust governed by the CCQ. The CCQ provides that only corporations that are authorized by law may act as a trustee. Generally, only federally or provincially regulated trust companies may act as trustees but there are certain other authorizations provided for in various legislation.[2]

Under the CCQ, acceptance by the trustee is a fundamental element for the constitution of a Quebec trust. Acceptance by the trustee means acceptance of the office of trustee. As legal capacity is a prerequisite for holding the office of trustee if the charity or non-profit is to be the sole trustee and lacks the requisite legal capacity it logically follows that the constitution of the trust would necessarily fail.[3] It is therefore likely that Quebec based charities would not be holding funds in express trusts particularly if the charities are governed by the Part III of the Companies Act (Quebec).

With respect to Quebec charities that are governed by the Canada Not for Profit Corporations Act (the “CNCA”), the situation is less clear. We have written elsewhere that the CNCA may contain sufficient authorization under the laws of Quebec for a corporation governed by the CNCA to act as a trustee[4] but this has not yet been tested before the courts.

Potential relief for charities

There is a need for the Canada Revenue Agency (« CRA ») to clarify its view before concluding that these new trust reporting requirements will apply to internal express trusts held by charities.

Historically, the CRA has taken the sensible administrative position that internal trusts do not need to file separate T3 returns.  There is a strong case to be made that this administrative practice should continue. This is particularly true in light of the fact that charities are already required to file a T3010 Registered Charity Information Return, which contains detailed information on trusts held by charities. Even if the CRA does require trust reporting to be done in respect of internal trusts, perhaps this will not be in the form of a T3. The T3 is not currently calibrated for charitable purpose trusts. Perhaps a revised T3010 will be required instead.

In addition, historically, internal trusts did not squarely come under the purview of subsection 150(1.1) of the Act. This begs the question of whether subsection 150(1.2) has changed this vis-à-vis internal trusts. Specifically, if new subsection 150(1.2) narrows an exception that never formally caught internal trusts to begin with, one must ask how the new subsection 150(1.2) can then create a new formal reporting obligation for internal trusts.

Moreover, even though trusts are normally regarded as taxpayers separate from their trustees, applying this logic to internal trusts would mean that separate tax returns and separate charitable registrations would be required for each and every donation to registered charities in the legal form of trusts. Charities such as universities, hospitals and community foundations could conceivably hold property under hundreds (if not thousands) of internal trusts. Requiring separate returns and separate charitable registrations for each and every internal trust would be a project requiring resources not proportionate to its perceived benefits. The question is whether the new trust reporting requirements obliges the CRA to undertake a different administrative practice. The CRA’s current administrative practice is both sensible and consistent with the spirit of the ITA. Given what is at stake, the CRA would  ideally affirm that the new trust reporting rules will not change its administrative practices on the subject.

It is our understanding that the Department of Finance is taking the concerns expressed in this article very seriously and we are hopeful that there will be an announcement which will ensure that any unintended consequences of these revisions are resolved. Miller Thomson will be sending updates as they are received to ensure our clients have the most up to date information on these changes.


Charities should contact trusted advisors to stay up to date with these new reporting requirements for internal express trusts. Miller Thomson’s Social Impact Group and Private Client Services Group will monitor developments and provide further updates if any clarifying information is provided by the CRA. Until then, please contact a member of Miller Thomson’s Social Impact Group or Private Client Services Group if you need assistance with determining the implications of these rules on any existing, or new, arrangements your organization may have.

[1] It is not yet settled that an express trust may be made orally in Quebec but there have been some decisions issued by the courts of Quebec recognizing oral express trusts.

[2] See generally, Troy McEachren, “Administration du bien d’autrui” (Montreal: JurisClasseur Québec Collection Thema, 2013)

[3] Marilyn Piccini-Roy, “Capacity of Non-Trust Company to hold Office as Liquidator, Trustee or Mandatary under the Law of Quebec” (2010), Estate, Trusts, and Pension Journal 358 at 361.

[4] Troy McEachren & Christos Panagopoulos, “The Canada Not-for-profit Corporations Act and Quebec Trust Law: A new Opportunity For Quebec Donors” (2015), 93 Can. Bar Rev. 793.

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