Trust Reporting Rules not to take effect for at least another year
The Canada Revenue Agency (the “CRA”) announced in its’ updated guidance on January 14, 2022, that it will not apply the proposed beneficial ownership reporting rules (the “New Trust Reporting Rules”) that were set to be effective for trusts with year-ends on or after December 31, 2021. In this regard, the CRA released the following statement:
The legislation to support this proposed measure is pending. The CRA will administer the new reporting and filing requirements once there is supporting legislation that receives Royal Assent. The CRA will continue to administer the existing rules for trusts, under enacted legislation. The proposed beneficial ownership reporting requirements will not be part of the published 2021 T3 income tax return.
The New Trust Reporting Rules were set apply to most trusts that are resident in Canada, as well as non-resident trusts that are currently required to file a T3 return. Proposed in the 2018 Federal Budget and confirmed in the 2019 Budget, these new trust reporting rules reflect the global trend toward increasing transparency of beneficial ownership, and are intended to assist the CRA in assessing tax liabilities of trusts and beneficiaries.
The New Trust Reporting Rules
The Federal Government drafted legislation to expand the annual reporting requirements governing certain trusts in 2018, but the legislation was never passed into law. The proposed new legislation would:
- create a T3 “Trust Income Tax and Information Return” filing obligation for certain trusts, even where the trust is dormant and no income tax payable;
- require a trust to report the identity of all trustees, beneficiaries and settlors of the trust, as well as the name of each person who exercised the ability to exert control over trustee decision regarding the trust’s appointment of income or capital; and
- impose a penalty of $25 per day up to a maximum of $2,500 for failing to comply with the new reporting requirement.
The Department of Finance in its February 4, 2022 news release stated that the draft proposals would also implement tax reporting requirements for trusts measures as announced in the previous budgets.
For more information on the New Trust Reporting Rules, please see the following McCarthy Tétrault Tax Perspectives blog post: Preparing for the New Trust Reporting Rules - applicable to tax years ending after December 30, 2021.