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New Trust Reporting Requirements for 2021 Canadian Tax Returns

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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