New Trust Reporting Rules in Canada
New trust reporting rules in Canada came into effect in 2021 which mandates certain trusts to provide further beneficial ownership information on an annual basis.
The Reason for the changes and requirements
From the 2021 tax year, under the changes, all non-resident trusts must report the identity of all trustees, beneficiaries and settlors of the trust as well as each person who has the power (related to the agreement) to exert control or override trustee decisions over the capital or appointment of income of the trust.
The rules also apply to the vast majority of express trusts resident in Canada. An Express trust is generally a trust that is created with the settlor’s express intent, which is usually made in writing. Oftentimes, certain trusts will be excluded from these measures and these exemptions are set out further below.
Trusts will be required to file a new schedule with its T3 income tax return regarding its beneficial owners to the CRA. Even in the event that a trust has no income to report, a T3 form still has to be filed along with this schedule.
Penalties, up to a maximum of CAD2,500, will apply if a trust has an obligation to file but fails to comply.
According to the Canadian Government, these changes aim to improve the collection of beneficial ownership information with respect to trusts. This allows the Canada Revenue Agency to better assess tax liabilities for trusts and their beneficiaries.
Trusts which hold less than USD50,000 in assets throughout the tax year are exempt from the new reporting measures, provided that their assets are confined to deposits, government debt obligations or listed securities. Furthermore, listed below are the types of trust entity that fall outside the scope of the new information reporting requirements:
- Trusts governed by registered plans which include deferred profit-sharing plans, registered disability savings plans, pooled registered pension plans, registered education plans, registered retirement income funds, registered pension plans, registered retirement savings plans, tax-free savings accounts and registered supplementary unemployment benefit plans.
- Mutual fund trusts, master trusts and segregated funds.
- Qualified disability trusts.
- Lawyers’ general trust accounts.
- Trusts that have been in existence for less than three months.
- Trust that qualify as non-profit organizations or registered charities.