The CRA has been provided funding of $79 million over a five-year period, and $15 million on an ongoing basis, to support the development of an electronic platform for processing T3 returns. The goal: to address the government’s concerns about “significant gaps” in trust filing. By the year 2021, there will be new requirements for filing trust returns, and advisors in tax and financial services will need to come up to speed on this issue.
Specifically, certain trusts (including some trusts that are not currently required to file a T3 return) will be required to file and report the identity of all trustees, beneficiaries and settlors of the trust. In addition, it will be required that trusts report the identity of each person who has the ability to exert control over trustee decisions regarding the appointment of income or capital.
This initiative was first introduced by Finance Canada, in the February 27, 2018, federal budget. The commentary noted that a trust that does not earn income or make distributions in any given year is generally not required to file an annual (T3) return of income. Rather, a trust is required to file a T3 return if the trust has tax payable or it distributes all or part of its income or capital to its beneficiaries. In the 2018 budget, there is no requirement for the trust to report the identity of all its beneficiaries.
Now, the Finance Department wants to change all that and require annual reporting for specific trusts. As a result, from 2021 forward, reporting rules will change as follows for:
An express trust, as defined in the budget documents, is generally a trust created with the settlor’s express intent, usually made in writing (as opposed to a resulting or constructive trust, or certain trusts deemed to arise under the provisions of a statute).
Some trusts are not affected. According to the most recent proposals, exceptions to the additional reporting requirements apply for the following types of trusts:
In summary, what needs to be reported: the identity of all trustees, beneficiaries and settlors of the trust, as well as the identity of each person who has the ability (through the trust terms or a related agreement) to exert control over trustee decisions regarding the appointment of income or capital of the trust (e.g., a protector).
Penalties effective for 2021 and subsequent taxation years. The following will be implemented for those who fail to file trust returns:
Additional educational resources: Advisors can find out more about trust filing in Knowledge Bureau’s certificate course Fundamentals of Filing Trust Returns. Also, be sure to register to join us for 2019’s Distinguished Advisor Conference in Puerto Vallarta, Mexico, where the theme will be “Powerful Competition: The Secret to Economic Resilience.”
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