Beginning in 2021, there will be new reporting requirements for Canadian residential trusts.
Currently, trusts must file a T3 return if there is any tax payable. A T3 must also be filed if any or all of the capital in the trust is distributed to beneficiaries.
Other trusts are exempt from filing including those that are inactive or have no tax liability.
New Reporting Requirements
Under the new requirements, if a trust is a resident or deemed resident of Canada, and has express intent, the trust must now file a T3 return … regardless of whether they owe taxes.
This also includes inactive trusts.
There are a few exceptions to these new requirements if certain conditions are met:
- Mutual fund trusts
- Segregated funds
- Master trusts
- Trusts managed by RRSPs, TFSAs, RESPs, RPPs and other registered plans
- Life and health trusts for employees
- Cemetery care trusts
- Certain regulated trusts, i.e. lawyer general trust accounts
- Graduated rate estates
- Qualified disability trusts
- Trusts that qualify as a registered charity
- Trusts that are less than 3 months old
- Trusts with less than $50,000 throughout the year
Those required to file T3 will also have to include an ownership schedule. This schedule will include the following for each settlor, trustee, beneficiary and anybody who can take control or change decisions regarding the allocation of assets.
- Name
- Address
- Date of Birth
- Jurisdiction of residence
- Taxpayer identification number
Non-Compliance Will Be Costly
If a trust that is required to file as of 2021 under the new requirements does not do so, there will be penalties. These penalties are $25 per day not filed up to a max of $2,500 (100 days). The minimum penalty is $100.
It’s also possible for a gross negligence penalty to be applied for unfiled returns. This same penalty can be imposed for false information or omission on the return. The penalty is 5% of the total maximum value of the properties in the trust. With a minimum penalty of $2,500.
The federal government is upping the income tax requirements and penalties for trusts in 2021 to help reduce:
- Money laundering
- Tax avoidance
- Tax evasion
If you have a trust you should reach out to your tax planning professional. If you have never filed before you will want to determine whether you now need to.
If you are required to file, you will also want to take steps to ensure you have the necessary information to file the newly required ownership schedule and make any necessary changes to the trust before the end of 2020.
