Article written by BRAD BERRY OF MOWBREY GIL in Canadian News Quarterly, a newsletter published by the Canadian member firms of Moore North America. These articles are part of our mission to become the partner of choice for your success by keeping you up to date.
New production requirements
To “improve the collection of beneficial ownership information with respect to trusts, and to assist the Canada Revenue Agency (CRA) in assessing the tax liability of trusts and their beneficiaries”, the CRA has developed draft legislation concerning new filing rules for trusts.
The new rules will come into effect for fiscal years ending on or after December 31, 2021.
Trusts resident in Canada or considered resident (with certain exceptions) are now required to file an income tax return at all times (previously, they were only required to do so if they had tax to pay), and a few specialized trusts are exempt.
New disclosures required
Settlors, trustees, beneficiaries and any person who has the capacity to influence the decisions of the trustee are required to file a declaration including their address, date of birth, territory of residence and tax identification number.
The definition of “settlor” is very broad and includes any person who has ever made a loan or transferred property to or for the benefit of the trust. There is a limited exception for arm’s-length parties where loans bear a reasonable rate of interest and transfers are at fair market value (FMV).
Penalties
The penalty for non-compliance will be $25 per day, with a minimum penalty of $100 and a maximum penalty of $2,500.
In the case of gross negligence (the failure to provide information knowingly or intentionally), the penalty imposed on the trustees and any other person involved in filing the return will be the greater of $2,500 or 5% of the highest fair market value of the property held by the trust during the year.
Objective
The CRA is concerned that trusts are being used to facilitate aggressive tax avoidance, tax evasion and money laundering.
Concerns
Because of the amount of information required and the burden placed on trustees, some trusts may wish to amend or dissolve their trusts before the end of 2020.
Trustees should consult their professional advisors regarding the effect of these changes on their trusts in the future.
Our overview of Canadian news for the first quarter is online. Read the next article on home office expenses here.
