In the 2018 Budget, the federal government first proposed expanding the annual reporting requirements for trusts. These new trust reporting rules were meant to come into effect for trusts with taxation years ending on December 31, 2021, and after; however, draft legislation was not released by the Department of Finance until February 7, 2022.
Under this new draft legislation, these rules are expected to come into effect for trusts with taxation years ending on or after December 31, 2022.
What are the New Trust Reporting Rules?
Under the new rules, all non-resident trusts that currently have to file a Canadian income tax return and most resident trusts must now identify all trustees, beneficiaries, and settlors of the trust, along with any person who can control the trust’s appointment of income or capital.
The following information is likely to be required for each person:
- Date of Birth
- Jurisdiction of residence
- Taxpayer identification number (e.g. SIN, business number, trust account number, or the identification number used in a foreign jurisdiction)
The new rules also require many trusts that previously did not file income tax returns to now file. Failure to file under these new rules could result in penalties of up to $2,500 per return and/or 5% of the fair market value of the trust’s property if the failure to file is done knowingly or the result of gross negligence.
Under the February 7, 2022, draft legislation, bare trusts and arrangements are now also considered trusts for the purposes of the new trust reporting rules.
Exceptions to the New Trust Reporting Rules
Not all trusts are required to report under the proposed new rules. Some of the more notable exceptions are:
- Trusts that have been in existence for less than three months at the end of the year
- Registered charities
- Graduated rate estates
- Qualified disability trusts
- Mutual fund trusts
- Trusts that hold assets with a fair market value less than $50,000 throughout the year if the only assets held by the trust are one or more of the following:
- certain debt obligations
- shares, debt obligations, or rights listed on a designated stock exchange
- shares of a mutual fund corporation
- units of a mutual fund trust
- interest in a related segregated fund
- interest as a beneficiary under a trust, all the units of which are listed on a designated stock exchange
- Do not wait until December 31, 2022, to compile this information. The sooner you can compile the information, the better.
- Look over your current structure; are there inactive or dormant trusts that you may need to file now?
- Consider whether winding up trusts that may no longer be useful or are redundant is an option.
This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual tax needs. This publication is not a substitute for obtaining personalized advice.
If you are looking for Tax Services, Crowe MacKay provides personalized support. Our tax professionals will help you maximize tax-planning opportunities and ensure the minimum amount required by law is paid.