Written by Barbara Kimmitt, Marissa German and Allyson Cairns-Walji
Beginning in 2021, new reporting rules 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 trusts created with the settlor or testator’s explicit instructions, as evidenced by a Trust Deed or a Will. Resulting trusts and constructive trusts are not express trusts.
2. New Annual Information Reporting Requirement
The new reporting requirement applies to all trusts that are required to file a T3 return. Every year during the trust’s existence, the trustees must provide the name, address, date of birth, residence and taxpayer identification 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.
Trustees must provide the additional information in a new schedule with the trust’s T3 return.
3. Exceptions to the New Rules
The following trusts are exempt from the new filing and reporting requirements:
- 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 the schedule of additional information will lead to a penalty of $25 per day of delinquency, with a minimum penalty of $100 and a maximum penalty of $2,500.
If the failure to file was made knowingly or due to gross negligence, an additional penalty is payable in the amount of 5 percent of the highest value of property held during the relevant year by the trust, with a minimum penalty of $2,500.
Existing penalties in respect of the T3 return will continue to apply.