All About Estates

Beneficial ownership reporting – don’t rush to wind-up the trust

Proposed trust reporting rules

I have read a number of articles published throughout 2021 stating that the new proposed trust reporting rules are coming.  Under the proposed new trust reporting rules, express trusts are required to report the beneficial ownership information to Canada Revenue Agency (CRA) and unless the Department of Finance changes the effective date for trusts that have a taxation year ending after December 30th, 2021, then the trust reporting rules are actually here now[1].

Trust taxation year

As defined in the Income Tax Act (ITA), under paragraph 249(1)(c), trusts have a taxation year that is on a calendar year basis which means for 2021, a trust’s year end is December 31st.  Note that this ITA paragraph does not apply to graduated rate estate (GRE) trusts as they can have a non-calendar tax year.

CRA stated this fact at the 2018 STEP conference[2].

Paragraph 249(1)(c) defines, for purposes of the Act, a taxation year of a trust, other than a graduated rate estate, to be a calendar year, except as expressly provided otherwise. In the year that a trust is wound up and final distribution of assets occur, there is no provision that would cause the taxation year to be a period other than a calendar year, regardless of when the period of accounts cease.

So why did I say that the proposed new trust reporting rules are actually here now?  Given that the proposed rules apply to any taxation year ending after December 30th, 2021 and all non-GRE trust taxation years end on December 31st, regardless of being wound up during the year, then any non-GRE trust existing at any point in time during 2021 is currently subject to the proposed trust reporting rules.  Therefore, trying to resist the proposed trust reporting rules by rushing to wind-up the trust prior to December 31st, 2021 is not going to work.  To put it another way, resistance is futile![3]

Reporting

Now that we know the winding up of the trust in 2021 won’t avoid the new proposed trust reporting rules, can specific persons involved in the trust (settlor, trustee or beneficiary) in 2021 be removed to avoid the reporting of their information to CRA (name, address, date of birth, jurisdiction of residence and taxpayer identification number).  If we look at proposed regulation 204.2(1), this information is to be reported for each person who, in the year, is a trustee, beneficiary or settlor.[4] As a result, any person that is a trustee, beneficiary, or settlor at any point in time in 2021 would be required to have their information reported to CRA, even if they were removed or the trust was wound-up prior the end of the taxation year.

What is the next step?

Assuming that Department of Finance doesn’t change the proposed effective date, then it would be prudent for trust administrators to diligently gather the required information that needs to be reported.  At Baker Tilly, we have been spreading the word since 2019 in an attempt to give trust administrators sufficient time to make changes to persons involved in the trust, or to ultimately wind up the trust.  Now that we are in 2021, the best and only course of action is to gather the necessary information and report.

For further information related to the rules, please check out previously published articles by Baker Tilly Canada:

 

[1] As of the date of this blog, the proposed rules have not been introduced to the House of Commons through a bill and are therefore not currently law.

[2] 2018-0744081C6

[3] This line is spoken by The Borg in the TV show Star Trek: The Next Generation (1987-1994)

[4] This information is also required to be reported for persons that have the ability to exert influence over trustee decisions regarding the appointment of income or capital of the trust.

About John Oakey
National Tax Director for Baker Tilly Canada. John has extensive experience with Canadian corporate and personal income taxes with specialization in the areas of corporate reorganizations, estate planning, succession planning and tax compliance. He also has significant experience dealing with GST/HST issues and U.S. citizen cross-border tax reporting issues.

0 Comments

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.