Enhanced income tax reporting requirements for certain trusts will come into effect for the 2021 and subsequent taxation years. A trust that is resident, or deemed resident, in Canada must now file a T3 return on an annual basis. With limited exceptions, this requirement applies even if the trust is inactive, or has no income in a year. Under the new reporting regime, the following information must be reported on a ”Beneficial Ownership Schedule”: the name, address, date of birth (for a natural person), jurisdiction of residence and Taxpayer Identification Number (TIN). This is required for each:
Settlor (person or company that created the trust)
Trustee
Beneficiary, and
Person who exerts control or can override trustee decisions over the allocation of income or capital of the trusts (such as a protector).
This new schedule must accompany the T3 return and cannot be filed alone. The penalty for trusts that are subject to T3 return filing requirements but fail to do so – or fail to provide the additional required information – is $25 for each day of delinquency, with a minimum penalty of $100 and a maximum penalty of $2,500. Gross negligence penalties may also apply for making a false statement, omission or failure to file. This penalty is equal to 5% of the total maximum value of all properties held during the relevant year by the trust, with a minimum penalty of $2,500. For example, a Canadian resident trust valued at $1 million with no income could incur a $50,000 penalty in a single year if the trustees knowingly fail to comply with the rules. If you are involved in a trust, it is important to locate relevant documents so you can identify each person who must be reported on the new schedule. If the trust is dormant or no longer serves a purpose, you should consider formally winding it up. Please do not hesitate to contact us for help in meeting these new reporting requirements.
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