The New Reporting Rules for Trusts
In 2020, we saw new transparency requirements come into force for Private Companies in BC. This new reporting requirement is aimed at decreasing money laundering and highlighting the individuals that actually pull the strings behind a privately held company.
In 2021, the Income Tax Act has now implemented similar transparency and reporting rules for trusts. Previously, a trust was required to file a tax return within 90 days of its year end, only if it:
made distributions during the year,
has tax payable,
is resident in Canada,
is non-resident and has a taxable gain or disposed of taxable Canadian property,
has a total income of $500 or more, or
holds property subject to the reversionary trust rule.
In accordance with the new rules, even if the trust was inactive or had no income during the year, it is now required to file a T3 tax return. Additionally, trusts that exist as of January 2021 must disclose the following information for the settlor, all trustees, all beneficiaries, and any significant individual with decision power:
date of birth,
tax identification numbers, and
jurisdiction of residence.
There are exemptions, such as qualified disability trusts, registered charity trusts, graduated rate estates and trusts that hold less than $50,000 worth of assets. However, the new rules also apply to
alter ego trusts,
spousal and common-law partner trusts, and
estates that remain unsettled after 36 months.
As with the reporting rules for BC privately held companies, the trust reporting requirements are met, if all of the above information is disclosed or, in cases where an identity is unknown or not ascertainable with reasonable effort, if sufficient information regarding the steps taken to identify the individual has been documented on the return.
If a trust fails to comply or makes false statements, CRA may charge a penalty of 5% of the highest fair market value of the trust assets, or $2,500, whatever is greater.
To ensure that your trust is in compliance with the new requirements, familiarize yourself with the trust’s organizational structure, have an open communication among the trustees and beneficiaries and seek professional help for any questions or concerns.