This post is a reminder that new reporting requirements for trusts which were proposed in the Federal Budget 2018 are coming into effect for 2021 and subsequent taxation years. The new requirements oblige trusts to provide additional beneficial ownership information on an annual basis and file an annual T3 return even if one is not required currently.
This change will provide the CRA with enhanced information on beneficial ownership information with respect to trusts as well as enhanced assessment ability of the tax owing by trusts and its beneficiaries.
Until the end of 2020, a trust generally had to file an annual income tax (T3) return if the trust had tax payable or it distributed all or part of its income or capital to its beneficiaries. Under the new requirements, a trust that is resident or deemed resident in Canada and is an express trust, with some exceptions, will have to provide additional information on an annual basis even if the trust is inactive or has no income in the year.
An express trust is generally a trust created with the settlor’s express intent, usually made in writing. However, there are some exceptions. The following types of trusts are not required to provide additional information:
- mutual fund trusts, segregated funds and master trusts,
- trusts governed by registered plans (i.e., deferred profit sharing plans, pooled registered pension plans, registered disability savings plans, registered education savings plans, registered pension plans, registered retirement income funds, registered retirement savings plans, registered supplementary unemployment benefit plans and tax free savings accounts),
- lawyers’ general trust accounts,
- graduated rate estates and qualified disability trusts,
- trusts that qualify as non-profit organizations or registered charities,
- trusts that have been in existence for less than three months; and
- trusts that hold less than $50,000 in assets throughout the taxation year (provided that their holdings are limited to deposits, government debt obligations and listed securities).
For trusts that are not exempt from the new requirements, the identity, date of birth, address and place of residence, including taxpayer identification number (SIN or TIN) will need to be reported for:
- all trustees,
- all beneficiaries,
- all settlors, including each person who has the ability (through the trust terms or a related agreement) to exert control or override trustee decisions over the appointment of income or capital of the trust (e.g., a protector).
The new reporting will have to be filed in a new schedule along with the T3 return, not separately.
If the trust fails to file the T3 return or forgets to provide the additional information, penalties may be harsh. They will be equal to $25 for each day of delinquency, with a minimum penalty of $100 and a maximum penalty of $2,500. If a failure to file the return is made knowingly, or due to gross negligence, an additional penalty will apply. The additional penalty will be equal to 5% of the maximum value of property held during the relevant year by the trust, with a minimum penalty of $2,500.
As we are reaching the end of 2021, now is the time to compile the information necessary for the new reporting.