New 2021 Trust Reporting Rules to the CRA
There are new tax return filing and information reporting requirements for trusts effective for taxation years ending on/after December 31, 2021. Changes include:
- Requiring a T3 to be filed for certain trusts even if they did not have to before,
- Requiring reporting of personal information including names of all trustees, beneficiaries, protectors and settlors and their addresses, date of birth and SIN.
Here’s a summary of the changes
What Are the New Filing Requirements?
The new rules are meant to provide transparency by collecting beneficial ownership information to allow the CRA to assess tax liabilities for trusts and their beneficiaries. Generally, a trust that has no activity during the year (or no income tax payable) is not required to file a T3 return. However, these exemptions will no longer apply for certain Canadian-resident and non-resident trusts.
Many trustees may never have filed a T3 return. The 2021 taxation year may be the first time they have to file and provide the trust deed and ownership details of private company shares. The new filing requirements are onerous and trustees should plan ahead. This may include gathering the additional information needed or terminating the trust if it is no longer needed before December 31, 2021.
What Are the New Information Reporting Requirements?
These new reporting rules will require “express trusts” and non-resident trusts to report with its T3 return, the following information: name, address, date of birth, the jurisdiction of residence, and taxpayer identification number (TIN). This requirement applies to each settlor, trustee, beneficiary, and the person who can exert influence over trustee decisions regarding the appointment of income or capital of the trust in the year. This new schedule must be filed together with a T3 return.
What Are the Exceptions to These New Rules?
The following trusts may continue to be exempt from these new rules if certain conditions are met (i.e. no income tax payable, no taxable capital gains, no dispositions of capital property in the year):
- graduated rate estates,
- trusts in existence for less than three months, holding less than $50,000/taxation year,
- mutual fund trusts, segregated funds and master trusts,
- trusts governed by registered plans,
- employee life and health trusts,
- cemetery care trusts and trusts governed by eligible funeral arrangements,
- lawyers’ general trust accounts,
- qualified disability trusts, and
- trusts qualifying as non-profit organizations or registered charities.
What Are the Penalties for Non-Compliance?
Penalties for failure to file the T3 return and including the new information reporting schedule will be $25 per day up to a maximum penalty of $2,500. Gross negligence penalties of up to 5% of the maximum fair market value of the property held in the trust in the year (minimum penalty of $2,500) may also apply.
Here’s how these changes impact other disclosure rules
FATCA and CRS Requirements
Similar income-tax disclosure rules exist under the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) in Canada’s Income Tax Act:
- FATCA – financial institutions are required to obtain certifications from most account holders to identify associated US persons. For Canadian entities classified as “passive non-financial entities”, the trust is required to provide detailed information on any settlor, grantor, trustee, beneficiaries and others exercising ownership or control of the trust, if any of these are US persons.
- CRS – information must be provided for certain account holders (including most family trusts) to provide the same information about trustees, grantors, settlors, beneficiaries and any controlling persons related to the trust.
It’s likely a trust has already been asked to complete a certification related to a bank account, brokerage account or other investment relationship. The difference between the disclosures mandated under FATCA and CRS and the new reporting rules is the absence of a selection mechanism for the information provided to the CRA – the information is only provided to the CRA where controlling persons identified by the trust are US persons or other non-Canadian persons. The new reporting requirements provide the CRA with a direct source of information to assist them in verifying consistency between the information reported under FATCA and CRS against the information reported with T3 returns. In anticipation of the new rules, trustees should review their submissions to various authorities for discrepancies.
BC’s Land Owner Transparency Act (LOTA)
BC has a similar disclosure for real estate legal transfers occurring on/after November 30, 2020. Now, every legal owner that is a “reporting body” with land in BC will have to file a transparency report by November 30, 2021, to disclose who has interests in the land. The objective is for BC to know who is the individual owner(s) of the land after digging through the layers. Interest holders have to be disclosed which includes shareholders, directors, partners, trustees, beneficiaries and their information. There are large penalties for not filing on time (greater of (i) $25,000 for an individual, $50,000 for a company and (ii) 15% of the value of the land or interest therein). Only legal professionals with a land title office online account can file.
How We Can Help
These new rules place a heavier burden on trustees to gather and report information. It may take additional time to gather the information from the various parties, particularly in cases where a trust has not been filed in the past.
Consider whether it makes sense to make changes or dissolve the trust before December 31, 2021 to limit or avoid these additional reporting requirements in case Finance defers implementing the new proposed rules.
We have the expertise to help you navigate these new requirements. Contact your DMCL advisor today to better understand how these changes will affect your trust. Please let us know if you would like us to refer a law firm to assist with a LOTA filing.