What is the penalty if the trust return is a year late?
Where the trust has a balance owing, the ordinary late filing penalty for the 2025 tax year is 5 per cent of that balance plus 1 per cent for each full month the return is late, to a maximum of twelve months. A year late therefore sits near the top of the ordinary range. Where the trust owes nothing for the year, that calculation has nothing to work on, but the return is still outstanding and the disclosures it carries about the trust, its settlor and its beneficiaries are still not on the record. Those two exposures are not the same and are not fixed by the same work.
The trust owes no tax, so is a late T3 still worth filing?
Yes. The obligation was never about the tax, and a nil year still carries the return's disclosures. There is also a practical reason. Gaps in a trust's filing history are what prompt questions, and a question about a year you cannot document is far more expensive than the return would have been. Trustees tend to need the history for other purposes too, when a property is sold or a trustee retires. Filing the nil years puts the record straight while the people who remember the facts are still available to explain them.
CRA issued a demand for the trust return, so does the penalty rise?
A demand is one of the two conditions, not the whole of it. For the 2025 tax year the higher figures are 10 per cent of the balance owing, plus 2 per cent for each full month the return is late, to a maximum of twenty months, and they apply where a demand to file was issued and a late filing penalty had already been charged in any of the three preceding tax years. A demand with no earlier penalty behind it does not get you there, and neither does a run of late years with no demand. Check the trust's own record before assuming either rate.
Does the penalty on a late trust return compound month on month?
The penalty does not compound. It is a flat percentage plus a monthly percentage, both applied to the same balance, and it stops at its cap. Interest is the part that compounds, and it does so daily on whatever remains unpaid. This matters when a trustee is deciding what to do first with limited money: paying down the balance stops the interest running on it, whereas the penalty is already fixed by the filing date and the cap. A trustee who has been told the whole charge compounds has been given the wrong picture of the exposure.
We filed late because the trust's residence was unclear, does that help?
It explains the delay, which is worth putting in writing, but it does not decide anything by itself. Residence turns on where central management and control has actually sat, and that is a question of conduct over a period rather than a judgement the trustees are free to make. Where it was genuinely open, the sensible order of work is to settle the residence position on the evidence first, then file the years that follow from it. Filing while the residence question is unresolved tends to produce returns in two countries that contradict each other.
Do late trust filings hold up the beneficiaries' own returns?
Usually, yes. Beneficiaries report what is allocated to them, and they cannot do that from a return nobody has prepared. A beneficiary who files on an estimate has to amend when the trust's figures arrive, and a beneficiary outside Canada may have a second filing to amend as well, on a different timetable. Where a distribution has already gone to someone abroad, the trustee's own obligations at the point of payment come into it too. Settling the trust's allocation first is what stops one late return becoming several.
Do I pay tax when I inherit property abroad?
The inheritance itself is often not income to you, but three other things can create tax: the estate may owe tax where the deceased or the property was situated, some countries tax the recipient directly, and the gain from the date you inherit to the date you sell is yours. Reporting obligations can also attach to holding the asset. See inheriting property abroad.
How does the treaty tie-breaker work when both countries say I am resident?
As a sequence, stopping at the first test that gives an answer: where you have a permanent home available; if in both or neither, where your centre of vital interests is; then habitual abode; then nationality; and if all of those tie, the two tax authorities decide by agreement. It is evidential rather than elective — you do not choose your treaty residence, you demonstrate it, which makes the record of homes, family and time the substance of the claim. See tie-breaking dual residency.
