Monday, August 31, 2020
Beginning in 2021, new reporting rules will come into effect for most Canadian resident trusts. "The rules are intended to improve the collection of beneficial ownership information with respect to trusts and to help the CRA assess the tax liability for trusts and its beneficiaries. Trustees and their advisors should be aware of the rules summarized below."
1. New Filing Requirement
The new filing requirement requires express trusts that are resident in Canada to file a T3 return, even if the trust does not have any income to report. Express trusts are created with explicit instructions by the settlor or testator.
2. New Annual Information Reporting Requirement
This requirement applies to all trusts that are required to file a T3 return and the trustees must provide the name, address, date of birth, and taxpayer ID number for all of the following persons in relation to the trust:
- all current trustees;
- all beneficiaries (including contingent beneficiaries); and,
- any person who has the ability (through the trust terms or a related agreement) to exert control over trustee decisions regarding the appointment of income or capital of the trust, such as a Protector.
3. Exceptions to the New Rules
- trusts in existence for less than three months at the end of 2021;
- trusts that hold assets with a total fair market value that does not exceed $50,000 throughout the year if the assets are comprised of cash, certain government debt obligations or listed securities;
- certain regulated trust accounts, such as a lawyer’s general trust account;
- trusts that qualify as a registered charity or non-profit organization;
- mutual fund trusts, segregated funds and master trusts;
- graduated rate estates and qualified disability trusts;
- employee life and health trusts;
- certain government funded trusts;
- trusts under or governed by registered plans such as RRSPs, RESPS, RRIFs and TFSAs; and
- cemetery care trusts and trusts governed by eligible funeral arrangements.
4. Penalties for Non-Compliance
Failure to file the T3 return or provide additional information will result in a penalty of $25 per day of delinquency, with a minimum penalty of $100 and a max penalty of $2,500.
See Barbara Kimmitt, Marissa German and Allyson Carins-Walji, New Trust Reporting Rules, Bennett Jones (Canada), August 18, 2020.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.