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Revised as of January 14, 2022
The Canadian Government is preparing to implement changes to the reporting requirements for Canadian resident and non-resident trusts deemed resident in Canada. Though these changes were announced in the 2018 Federal Budget and were initially expected to come into effect on December 31, 2021, the Canada Revenue Agency (CRA) announced on January 13, 2022 that the rules are now anticipated to come into force next year, effective for December 31, 2022 . In the meantime, here is what you need to know about the government’s new reporting requirements.
Understanding the changes to trusts
Currently, you only have to file a T3 income tax return for an active trust. This means if your trust has taxable income, or if part or all of its capital is allocated to beneficiaries at any point in the year, you’re required to file a T3 return. If the trust is inactive, you do not need to file a T3 return.
With the new requirements, Canadian trustees (for both resident and deemed resident trusts in Canada) of active and inactive trusts (with certain exceptions) will now be expected to file a T3 return and report additional information.
Some inactive trusts will be exempted from filing. A trust that holds assets below $50,000 throughout the year will not be expected to file a T3 return as long as the only assets held by the trust include one or more of the following:
- Cash,
- Some debt obligations,
- A share, debt obligation or right listed on a designated stock exchange,
- A mutual fund share or trust unit,
- An interest in a segregated fund.
Other exemptions include:
- Trusts that are registered as a charity
- Graduated rate estate trusts
- Qualified disability trusts
- Trusts that are less than three months old
These changes as part of a push for increased disclosure and transparency for trusts, will come into effect for taxation years ending on or after December 31, 2021. This new legislation aims to help the Canada Revenue Agency (CRA) collect beneficial ownership information and assess the tax liability for trusts and their beneficiaries.
How reporting trusts will work
Trusts will be required to file a new schedule along with a T3 return. The schedule will report:
- The identity of its trustees
- The identity of its beneficiaries
- The settlors of the trust
- Each person who has the ability to control the trust or can override a trustee’s decision over where capital goes (ie: a trust protector)
For each of the persons identified above, the following information will need to be reported:
- Name
- Address
- Date of birth
- Jurisdiction of residence, and
- Tax identification number (such as the social insurance number, business number, trust account number, or taxpayer identification number used in a foreign jurisdiction)
What happens if you don’t comply
Those who do not comply with the government’s new trust reporting requirements will be fined $25 per day of delinquency, starting at a minimum penalty of $100 up to a maximum of $2,500 per year, depending on the circumstances. Any existing T3 penalties will also apply.
If the CRA learns that you failed to file a return on purpose or because of gross negligence, you’ll be penalized an additional 5% of the maximum value of property held during the reporting year. In this situation, the minimum penalty will be around $2,500.
Getting help
To avoid any financial consequences, it’s important to get in front of the government’s new trustee requirements. For a detailed breakdown of the new changes and assistance filing your T3 returns, you can always turn to a Zeifmans advisor. Contact our experienced team here.
