As we head in to the Fall of 2020, we are quickly approaching the new trust reporting requirements. The new trust reporting rules come into effect with taxation years ending after Dec. 30, 2021.
As a reminder to administrators, if a trust continues to be in place past Dec. 31, 2020, the trust will need to comply with the new reporting rules and the trust administrators must provide the following additional information in relation to the settlor, the trustees, the beneficiaries and persons that can exert control of the trust.
• Date of birth (only for individuals),
• Jurisdiction of residence, and
• Taxpayer identification number.
The trust may be subject to existing non-compliance penalties for providing incomplete or inaccurate information, or for not filing the prescribed form or trust return. In addition to these existing penalties, the administrator of the trust may be subject to harsh penalties for knowingly or, under circumstances amounting to gross negligence, making or participating in, assenting to or acquiescing in the making of a false statement or omission of required information. This additional level of penalty is equal to the greater of $2,500 and five per cent of the highest total fair market value of all the property held by the trust in that year. There are exceptions to some of these potential penalties if reasonable effort is undertaken to file complete and accurate information.
Beneficiaries and trustees must provide this information to the CRA even if they were only a trustee or beneficiary for one day during any given taxation year after 2020. Any trustee or beneficiary who does not want to have the above information reported to the CRA should consider making a change to their status no later than December 31, 2020. Not all trust indentures are written the same, and there could be negative tax consequences related to a change in trustee or beneficiary.
If not already done so, administrator of a trust should plan for these new reporting requirements. The first filing deadline to report this information may not be until March 31, 2022 (for the 2021 taxation year), but any plan to remove a trustee or a beneficiary must be done before the end of the 2020 calendar year. Otherwise, that person will be subject to the new reporting requirements. The information-gathering process may also be hindered if there are beneficiaries who are not known or ascertainable, or who are uncooperative.
Happy Reading and stay safe.