In July 2018, the Government of Canada proposed legislation that significantly expanded the reporting requirements for trusts. These new reporting requirements were 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 their beneficiaries. These changes were to be implemented for trusts with taxation years ending on or after December 31, 2021. However, the supporting legislation for these changes remains pending and has not yet received Royal Assent.
Government Makes Announcement About Delay
On January 14, 2022, the Government announced that these new trust reporting requirements would still be delayed, stating the following:
The legislation to support this proposed measure is pending. The CRA will administer the new reporting and filing requirements once there is supporting legislation that receives Royal Assent. The CRA will continue to administer the existing rules for trusts, under enacted legislation. The proposed beneficial ownership reporting requirements will not be part of the published 2021 T3 income tax return. This note will be updated when more information is available. You should not delay filing your 2021 T3 tax return.
For trust returns that are required to be filed for the 2021 and subsequent taxation years, Budget 2018 proposes 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.
What Are the New Trust Reporting Rules?
The new reporting rules apply to certain “express trusts” residents in Canada (or that are deemed resident in Canada) for taxation years ending on or after December 31, 2021. An express trust is generally a trust created with the settlor’s express intent, usually made in writing (as opposed to a resulting or constructive trust, or certain trusts deemed to arise under the provision of a statute).
Changes to Trusts Filing Requirements
The Government has stated that 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. Therefore, for the 2021 and subsequent taxation years, certain trusts that have not needed to file a T3 will need to start filing one.
Beneficial Ownership and Control Information to be Provided
For 2021 and subsequent taxation years, Budget 2018 provides that all non-resident trusts that currently have to file a T3 return and all express trusts that are resident in Canada, with some exceptions, must disclose information which includes the name, address, date of birth, jurisdiction of residence and taxpayer identification number (i.e. social insurance number, business number, trust account number or foreign taxpayer identification number for each of the following:
- Trustee
- Beneficiary
- Settlor
- Protector (that is each person who has the ability – through the terms of the trust or a related agreement – to exert influence over trustee decisions regarding the appointment of income or capital of the trust)
This information is to be included in a new schedule for the T3 return. The Government has stated that further information about the new schedule will be posted on Canada.ca when it becomes available.
Penalties for Non-Compliance
If a trust that is required to file a T3 return fails to do so or fails to provide the additional information required about beneficial ownership, it will incur a penalty equal to $25 for each day of delinquency, with a minimum penalty of $100 and a maximum penalty of $2,500.
If a trust knowingly fails to file the return or fails to file the return because of gross negligence, it will incur a further penalty equal to 5% of the maximum value of property held during the relevant year by the trust, with a minimum penalty of $2,500. The Government has also stated that existing penalties in respect of the T3 return will continue to apply.
Trusts That Do Not Need to Provide Additional Information
Budget 2018 provides that the following types of trusts (that are either resident in Canada, or non-resident but required to file a T3 return) are not required to provide the additional information as described above:
- Mutual fund trusts, segregated funds and master trusts
- Trusts governed by registered plans (i.e. deferred profit sharing plans, pooled registered pension plans, registered disability savings plans, registered education savings plans, registered pension plans, registered retirement income funds, registered retirement savings plans, registered supplementary unemployment benefit plans and tax-free savings accounts)
- Lawyers’ general trust accounts
- Graduated rate estates and qualified disability trusts
- Trusts that qualify as non-profit organizations or registered charities
- Trusts that have been in existence for less than three months
- Trusts that hold less than $50,000 in assets throughout the taxation year (provided that their holdings are confined to deposits, government debt obligations and listed securities)
Timeline for Implementation
While the final form of the legislation and the timeline for its implementation is still unknown, it may be prudent for trustees to begin assembling the requisite information with respect to trustees, beneficiaries, settlors and protectors so that it is available should the legislation receive Royal Assent. Should these filing and reporting requirements become law this year, T3 tax returns with Beneficial Ownership and Control Information will need to be filed in 2023 for the 2022 taxation year.
Contact the Wills and Estates Lawyers at Baker & Company in Toronto for Assistance with Trusts
Trusts can be a powerful estate planning tool and it’s imperative that any trust complies with the required filing and disclosure requirements to avoid any costly penalties. The knowledgeable lawyers at Baker & Company will continue to monitor this proposed legislation. Our team has experience with many facets of trust law and can assist in ensuring that your trust is meeting all legal requirements and functioning as effectively as possible. To speak with a lawyer, contact us online or by phone at 416-777-0100.
