The Canada Revenue Agency ("CRA") has recently announced that the proposed beneficial ownership reporting requirements for trusts will not be part of the 2021 T3 trust reporting requirements, as the legislation to support these proposed measures is pending; however, you should not delay filing your 2021 T3 tax return. CRA will continue to administer the existing rules for trusts under the enacted legislation and 2021 T3 income tax returns are required to be completed and filed in the usual course.
By way of background, and as previously reported in our bulletin, 2018 Federal Budget: Trust Reporting Requirements and Compliance – A Heavier Burden on Trustees, the federal government tabled the third budget (“Budget 2018”), on February 27, 2018, which included a proposal to increase reporting requirements for trusts and impose penalties for failing to comply. The proposal is aimed at diminishing the potential for taxpayers to engage in aggressive tax avoidance and tax evasion activities relating to trusts.
To improve the collection of beneficial ownership information with respect to trusts and to assist the CRA in assessing the tax liability for trusts and its beneficiaries, Budget 2018 proposed to impose an obligation on certain trusts to file a T3 income tax return where one does not currently exist and to provide additional information on an annual basis. The new reporting requirements, (which include reporting the identity of all trustees, beneficiaries and settlors of the trust, as well as the identity of each person who has the ability to exert control over trustee decisions regarding the appointment of income or capital) were scheduled to come into effect in 2021 and would apply to express trusts that are resident in Canada and to non-resident trusts that are currently required to file a T3 income tax return.
If the trustees fail to file a T3 income tax return, including a required beneficial ownership schedule, where required, there will be 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 failure to file was made knowingly, or due to gross negligence, an additional penalty will apply, equal to 5% of the maximum fair market value of property held during the relevant year by the trust, with a minimum penalty of $2,500.
If you have a family trust and wish to consider how these new reporting arrangements might impact your trust in the future, you may contact any member of our Private Client Services or Tax Groups.
Special thanks to Jessica Butler, Law Clerk, for her contributions to this article.