Upcoming reporting changes could rattle cagey trustees

Stricter reporting requirements come with potential implications for estate-planning professionals

Upcoming reporting changes could rattle cagey trustees

Trustees and estate-planning professionals, be warned: forthcoming changes to trust reporting requirements could spell the loss of some long-held exemptions and a greater degree of potentially unwanted information exposure.

“Previously, a trust that had no activity during the year or no income tax payable was not required to file a trust income tax and information return (also called a ‘T3 Return’),” wrote Alexander Pedlow of Richards Buell Sutton in a recent article. “However, for certain trusts with taxation years ending on or after December 31, 2021, these exemptions may no longer apply and these trusts will now be required to file a T3 Return as well as certain additional information.”

Under the new rules, Pedlow said, express trusts – including trusts created by a testator in a will – to submit a schedule of information on the settlor, the trustee(s), the beneficiary or beneficiaries, and any person with the ability to influence trustee decisions on the distribution of income or capital from the trust.

The schedule of information, which must accompany the trust’s T3, must provide the following information for each person or entity listed above:

  • Name;
  • Address;
  • Date of birth (for individuals);
  • Jurisdiction of residence; and
  • Taxpayer identification number (TIN), including a social insurance number, a business number, and an account number issued to a trust.

For any given tax year, the information must be provided for any trustee or beneficiary even if they were only named so for a single day within that period, Pedlow said. Any trustee or beneficiary who does not wish to disclose their information to the CRA, he added, must consider taking steps to have themselves removed from the trust before December 31, 2020.

“Penalties for non-compliance with the new reporting requirements will include a $25 per day fine (with a minimum fine of $100) up to a maximum penalty of $2,500.,” he said. In cases where the party filing the return knowingly or negligently makes a false statement within the filing, the penalties are ramped up to 5% of the trust property’s fair market value, with a minimum penalty of $2,500.

In instances where the identity of a beneficiary cannot be ascertained, the one filing must take steps to furnish the CRA with detailed information in order to determine, whether any particular person is a beneficiary of the trust.

The changes will likely also have implications on estate-planning recommendations, Pedlow said. In instances where a client may wish to use a trust as a substitute for a will, estate planners must apprise them of the added information collection and reporting requirements that would not apply to a will. That may make alternative estate-planning tools more appealing in case they do not want to declare the identity the beneficiaries of their estate prior to their death.

“Trustees, and those acting in a fiduciary capacity, need to be especially mindful of these changes to the filing requirements as the new rules place the onus on such fiduciaries to collect and file this information,” Pedlow said.


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