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Currently, certain inactive trusts are exempt from filing a trust return (T3 Return). However, for taxation years ending on or after December 31, 2021, the 2018 federal budget proposed new reporting requirements for trusts. The changes are meant to improve the collection of beneficial ownership information with respect to trusts and to help the Canada Revenue Agency (CRA) assess the tax liability of trusts and their beneficiaries. The budget also proposed penalties for non-compliance with the new requirements.
Canadian resident “express trusts” (generally a trust created with a settlor’s express intent, as opposed to a resulting trust, during his/her lifetime or at death through a will) will be required to file an annual T3 Return, even where one is not currently required. This expanded filing requirement will impact most standard family trusts settled as part of an estate freeze and those settled to hold recreational property.
All non-resident trusts that are currently required to file a T3 Return and Canadian resident express trusts (other than exceptions listed below) will be required to report the following information on a new schedule, to be filed along with the T3 Return each year:
The new rules do not apply to trusts that are not express trusts and certain express trusts. The following is a select list of express trusts not subject to the new rules:
Failure to file the T3 Return, including the new schedule of additional information, will lead to the standard penalty of $25 per day (minimum penalty of $100) with a maximum penalty of $2,500. An additional gross negligence penalty of 5% of the highest total fair market value of all the property held by the trust in that year (minimum penalty of $2,500) may also apply.
Trusts that may not have been required to file tax returns in the past will likely be required to file one annually starting in 2021. Although the earliest filing deadline under these new rules is a year away (March 31, 2022 for trusts with taxation years ending on December 31, 2021), trustees should begin gathering information needed to comply with these new rules, as the additional information required may not be readily available.
Please consult your Smythe advisor with any questions about the new reporting rules.