A few things to note:

1. The 2019 T3 returns are due Monday, March 30, 2020 (as 2020 is a leap year).
2. Starting for the 2021 year:
   • You must file a T3 return with the CRA (with only a few exceptions) even if there is no activity, tax owing or distributions to beneficiaries. Penalties for not filing are $25 per day (minimum $100) to a maximum of $2,500. Gross negligence penalties may also be levied up to 5% of the maximum fair market value of the trust’s assets.
   • You must now also report on the T3 return details of the settlor, trustee(s), protector and beneficiaries including each of their names, addresses, birth dates, SIN (or tax ID) and tax residency.  Banks or other financial institutions may also require a copy of each party’s drivers’ license. Beneficiaries who previously did not know they are beneficiaries will now know if you need to ask them for this additional information. Consider this when setting up new trusts.
3. There is a CRA audit initiative on trusts (CRA set up a separate group to focus on trusts) so it is important to:
   • Every year:
     • Keep good accounting records of all trust transactions for each year (including past years if not done);
     • Have signed trustee resolutions dated no later than Dec 31 for every year you are allocating income/gains to beneficiaries. Issue those beneficiaries promissory notes if the income/gains were not paid to them in cash or in kind during the year;
     • If there are any loans from related individuals or other trusts then pay interest on those loans every January 30^th for interest charged for the previous calendar year. Talk to us if the trust owes money to a company or partnership with corporate members.

See our March 14, 2018 blog when the prescribed rate was 1% (currently 2% – stay tuned):  https://www.dmcl.ca/last-chance-for-family-loans-prescribed-rates-to-rise-april-1/

1. Know where the trust agreement or indenture and the cash/coin/ingot used to settle the trust is kept;
2. Ensure there is a paper trail on how the trust subscribed and paid for shares of a family owed company;
3. Use the trust’s own bank or investment account to invest, make distributions or pay for expenses – for easier and safer tracking (rather than run those items through the trustee’s or a parent’s account);
4. Do not make payments to minors or pay any of their expenses without consulting your tax advisor. You may otherwise be triggering income tax at the top rate plus interest and penalties;
5. Watch the 21^st anniversary date of the trust in case you need to take steps to avoid having gains on the trust’s assets taxed prematurely on the 21^st anniversary date or distribute assets to beneficiaries that you may not want to yet. Diarize that date at least 6 months prior; and
6. Expect a CRA audit if the trust has sold Canadian private company shares and you are wanting to use family member beneficiaries’ enhanced capital gains exemptions to shelter some of the trust’s gain from tax. Ensure there are proper trustee resolutions and proof of payment in cash or in kind (e.g. promissory notes).

Trusts are still a powerful instrument for tax and estate planning. Like any other asset, they just need to be maintained properly. If you have any questions or if you need help filing your taxes, please contact one of our personal tax specialists.