Effective for tax years ending on or after December 31, 2021, new trust disclosure rules come into effect requiring additional disclosure information be filed with the T3 Trust Income Tax and Information Return. A new schedule disclosing trustee, settlor and beneficial ownership information will be required to be filed along with the T3 Trust Income Tax and Information Return (T3). Almost all trusts (with some exclusions noted below) must file a T3 and the past exemption of “earning no income” will no longer apply to exempt a trust from filing.
Additional Information to be Disclosed
The following individuals’ or entities’ names will be disclosed on the new schedule:
- Settlor;
- Trustees;
- Beneficiaries; and
- Each person who has the ability to exert control or override trustee decisions.
Details for each of the above individuals and entities will also be disclosed on the new schedule:
- Name;
- Address;
- Date of Birth;
- Residency; and
- Taxpayer ID (Social Insurance Number, Business Number, Foreign Tax ID Number, etc.).
Exemptions
The following trusts are exempt from the new trust disclosure rules:
- Graduated Rate Estates;
- Qualified Disability Trusts;
- Trusts that have been in existence for less than three months;
- Trusts that hold less than $50,000 in certain assets (cash, public company shares/debt, mutual fund shares, etc.) throughout the year;
- Trusts governed by registered plans (i.e. RRSPs, TFSAs, etc.);
- Lawyers’ general trust accounts; and
- Trusts that qualify as NPOs or Charities.
Penalties
The disclosure form is considered an information return. Penalties for late filing of information returns are $25 per day, with a minimum penalty of $100 and a maximum penalty of $2,500.
Additional penalties for failure to file made knowingly or due to gross negligence are equal to five per cent of the maximum value of property held by the trust during the year, with a minimum penalty of $2,500.
Planning Considerations
- Windup trusts that are no longer necessary for their originally intended purposes.
- Be cognizant of the information gathering obligations when selecting settlors, trustees, and beneficiaries when setting up new trusts.
- Be cognizant of provisions in trust indentures that do not specifically identify a beneficiary, but rather a class of beneficiaries and may need to disclose information under the new reporting requirements. For example, any corporation owned by any of the beneficiaries.
- Get a head start and begin gathering information from settlors, trustees and beneficiaries in preparation for the new disclosure requirements.
- Ensure that you keep up to date on settlor, trustee and beneficiary information changes to make reporting easier at tax time (eg. Birth of children, changes in addresses).
Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Contact your Crowe Soberman advisor for more information.
Jingchan Hu
Partner,
Tax
Jingchan Hu Professional Corporation