Changes to trust reporting rules
Article written by BRAD BERRY FROM MOWBREY GIL for the Canadian Overview of Q1 2021. A newsletter published by Canadian member firms of Moore North America. These articles are part of our mission to become partner of your success by keeping you informed of the news.
New Filing Requirements
In order “to improve the collection of beneficial ownership information with respect to trusts and to help the Canada Revenue Agency (the “CRA”) assess the tax liability for trusts and its beneficiaries” the CRA has come out with Draft legislation for new reporting rules for Trusts.
The new rules are effective for year ends on or after December 31, 2021.
Trusts resident in Canada or deemed resident (with certain exceptions) are now required to file a return at all times (previously only required where taxable) with a handful of specialty trusts exempted.
New Disclosures Required
The settlors, trustees, beneficiaries, and any person who has the ability to exert influence over trustee decisions are required to be disclosed along with their address, date of birth, jurisdiction of resident, and their taxpayer number.
The definition of “settlor” is very broad and includes any person that has previously made a loan or transferred property to or for the benefit of a trust. There is a narrow exception for arm’s length persons where loans bared a reasonable rate of interest and transfers were at FMV.
Failure to comply penalties of $25 per day being a minimum of $100 to a maximum of $2,500.
If gross negligence is assessed (a failure to provide the information knowingly or intentionally) the penalty imposed on the trustees and any person who participated in filing the return will be the greater of $2,500 and 5% of the highest fair market value of the Trust’s property held in the year.
The CRA is concerned that Trusts are being used to facilitate aggressive tax planning, tax evasion and money laundering.
Given the scope of the information required and the onus on the Trustee(s) certain trusts may wish to amend or dissolve their trusts prior to the end of 2020.
Trustees should consult with their professional advisors with respect to the effect this has on their Trust(s) going forward. Read the next article in the Canadian Overview Q1 on Home Office Expenses here.