New Trust Reporting Requirements Effective for 2021 Tax Year
Published:
December 7, 2020
Author(s):
All trusts that continue to be in effect past December 31, 2020, will be subject to new reporting requirements and harsh non-compliance penalties for incomplete or inaccurate information. It’s important that trust administrators understand their new reporting obligations to avoid disputes, penalties, and redundancies. In addition, trust administrators affected by the new rules are wise to proactively review the trust and determine whether it still provides a useful purpose for their particular circumstances and, if not, consider winding it down before the new reporting rules take effect.
Affected Trusts. With some exceptions, the new reporting requirements will require all Canadian resident trusts created by Deed or Will to file a T3 return even if the trust has no income to report.
Reporting. The new rules require trustees or executors to provide information in relation to the settlors, beneficiaries, current trustees, and all those who have the ability to exert control over trustees’ decisions, such as protectors. Once the new reporting rules take effect, in every year of the trust’s existence the administrators must file a new schedule with its T3 return to provide all of the following information about each beneficial owner:
- Name
- Address
- Date of birth (for individual beneficiaries only).
- Jurisdiction of residence.
- Taxpayer identification number.
Penalties. In addition to the existing penalties in respect to T3 returns, which will continue to apply, those that fail to comply with the new reporting requirement may be subject to harsh penalties for knowingly or, under circumstances amounting to gross negligence, making or participating in a false statement or omission of the required information. This additional penalty can be equal to the greater of $2,500, and five per cent (5%) of the highest total fair market value of the property held by the trust in the relevant year. For example, if the property the trust holds is valued at $2M (including the value of cash and non-cash assets like private company shares), the penalty could be $100,000 if the trustee(s) knowingly fails to comply with the new reporting rules.
Please contact your McInnes Cooper lawyer or any member of the Tax Law Solutions Team @ McInnes Cooper to discuss this topic or any other legal issue.
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