All About Estates

Trust reporting requirements

The Department of Finance recently released draft legislation for consultation.  The draft rules serve to implement measures announced in the 2018 Federal Budget including rules affecting trust income tax reporting.

For trust returns that are required to be filed for the 2021 and subsequent taxation years, Budget 2018 proposed that certain trusts provide additional beneficial ownership information on an annual basis.  As a result, these trusts will be required to file an annual T3 return even where one is not currently required.  Generally, a trust has to file a T3 return if the trust has tax payable or it distributes all or part of its income or capital to its beneficiaries.

For 2021 and subsequent taxation years, Budget 2018 proposes that all non-resident trusts that currently have to file a T3 return and express trusts that are resident in Canada, with some exceptions, will have to provide additional information on an annual basis.  As a result, for the 2021 and subsequent taxation years, certain trusts will have to file a T3 return where currently they do not have to file a T3 return.  This change is being made to improve the collection of beneficial ownership information with respect to trusts and to help the Canada Revenue Agency (the “CRA”) assess the tax liability for trusts and its beneficiaries.

For 2021 and subsequent taxation years, Budget 2018 proposes that in addition to existing penalties in respect of a T3 return, a penalty will apply if a trust that has to file a T3 return fails to do so or fails to provide the additional information about the beneficial ownership.  The penalty 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 was 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.

Executors and trustees should use the time to prepare themselves for the implementation of these rules in 2021.

About Derek de Gannes
Derek A. de Gannes: Director, Domestic & International Tax of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: derek.degannes@rsmcanada.com

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