New trust reporting rules proposed for this year
Trustees may have additional tax reporting obligations with respect to trusts they manage as of 2021
If you oversee a trust and have not been required to file T3 trust income tax and information returns with the Canada Revenue Agency (CRA) in the past, you should be aware of the new federal reporting rules, which are intended to come into effect in 2021.
The Government of Canada has proposed new legislation requiring trustees of certain trusts to file annual T3 returns with information disclosures. The proposed legislation will impact most Canadian-resident and deemed-resident trusts with taxation years ending on or after December 31, 2021.
Under the current rules, certain trusts are exempt from filing T3 returns with the CRA. These include trusts that do not receive any income, do not dispose of assets, and do not distribute capital to beneficiaries. Examples include:
- Trusts that hold personal-use real estate assets (e.g., cottage, vacation home); and
- Trusts that hold shares of a private company, where dividends are not received and the shares are not disposed of. These structures typically arise as part of estate freezes.
The proposals come amid a growing focus globally on thwarting tax evasion. These new measures are designed to boost the transparency of trusts, among other financial structures.
What needs to be disclosed as part of the new trust reporting rules?
The new rules require annual disclosure to the CRA, through the T3 return, of the following details pertaining to all settlors, trustees, beneficiaries, and other persons that can exert control over a trust:
- Date of birth (if an individual)
- Jurisdiction of residence
- Taxpayer identification number (e.g., Social Insurance Number for Canadian individuals)
Are there any exemptions from these new rules?
Notable trusts exclusions include:
- Graduated rate estates and qualified disability trusts
- Trusts governed by registered plans (e.g., RRSP, RESP, TFSA)
- Trusts that have been in existence for less than three months
- Trusts that hold less than $50,000 in assets throughout the year, but only if such assets are deposits, government debt obligations, and listed securities
What are the penalties for failure to comply with these rules?
Penalties for failing to file the T3 return start at $25 per day, with a minimum penalty of $100 and a maximum penalty of $2,500. Knowingly failing to file or gross negligence can result in additional penalties of up to 5% of the highest total fair market value of all property held by the trust in the year.
When is the first filing due date under these new rules?
The filing due date of the T3 return for a trust with a December 31, 2021 taxation year end is March 31, 2022.
Staying “private” will no longer be an option for the majority of trusts starting in 2021. It is important for you to consider your involvement in any trusts and the impact of these new reporting rules. For a more detailed explanation of this topic, contact us to request a copy of our Education Library Article: New trust reporting rules.