Reporting Requirements
The Budget proposes extensive new reporting requirements for most family trusts, effective for returns required to be filed for 2021 and subsequent taxation years. These requirements could impose an obligation to file a return where none currently exists, such as where the trust earned no income in the year. The trust will be required to report the identity of all trustees, beneficiaries and settlors of the trust. In addition, the identity of each person who has the ability to exert control, through the trust terms or a related agreement, over trustee decisions in respect of the appointment of income or capital must be disclosed.
The reporting requirements will apply to Canadian-resident express trusts and to non-resident trusts currently required to file a Canadian return. This would include most personal "family" trusts used in tax planning. The following trusts are excluded from the requirements:
- Mutual fund trusts, segregated funds and master trusts
- Trusts governed by registered plans such as RRSPs
- Lawyers' general trust accounts
- Graduated rate estates (generally the first 36 months of a deceased individual's estate)
- Qualified disability trusts
- Trusts that qualify as registered charities or non-profit organizations
- Trusts in existence for less than three months
- Trusts that hold less than $50,000 in assets throughout the year as long as the assets are deposits, government debt obligations and/or listed securities; the Budget documents do not indicate if the $50,000 is based on cost or fair market value
These new reporting requirements are designed to provide better beneficial ownership information.
The Budget also introduces penalties for failure to file a trust return where the new reporting requirements apply. The penalty will be $25 per day late with a minimum of $100 and a maximum of $2,500. If the failure to file is made knowingly, or as a result of gross negligence, there will be an additional penalty of five per cent of the maximum fair market value of property held during the year with a minimum of $2,500.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.