In the 2018 Federal Budget, the federal government proposed to increase reporting requirements for trusts and impose penalties for failing to comply. Later that same year, Finance released draft tax legislation on the new trust reporting requirements. The aim is to enhance the collection of ownership information relating to trusts and to reduce the potential for taxpayers to engage in aggressive tax avoidance and tax evasion activities relating to trusts.
The new rules will be cumbersome on trustees of Canadian-resident express trusts (subject to certain exceptions) and trustees of non-resident trusts that file a T3 Return, as the trustees will be required to report extensive information on the settlor, trustees, beneficiaries, and controlling persons (i.e., protectors) of those trusts. The specific information for each settlor, trustee, beneficiary and protector includes their name, address, date of birth (if an individual), jurisdiction of residence, and taxpayer identification number. The taxpayer identification number includes an individual’s social insurance number, a corporation’s business number, and a CRA account number issued to a trust in Canada, or similar account number issued in the jurisdiction in which the trust is resident.
While the new rules only take effect in taxation years ending on or after December 31, 2021, it may be important to consider whether any steps should be taken before the end of 2020. For example, if there are trusts that no longer serve a useful purpose, it may be beneficial to terminate the trusts before the end of 2020 to avoid the need to comply with the new reporting and disclosure rules. In addition, if a trustee of a trust is planning to resign, the trustee may wish to do so (and a replacement appointed, if appropriate and necessary) before the end of 2020, because a trustee who is a trustee for even one day in 2021 will be required to file a T3 Return and disclose the information noted above.
Please log in to read the full article.