At Derfel Estates Law, we regularly advise trustees on their obligations and responsibilities, which can be significant. We are currently well into the final quarter of the year, and as 2021 approaches, we thought it would be a good time to remind trustees about changes to reporting requirements. These new requirements will apply to all trusts at the end of their first taxation year following December 30, 2021.
How is the filing period changing for trusts?
The federal government’s Budget 2019 states that for 2021 and subsequent taxation years, all non-resident trusts that would currently be required to file a T3 tax return, as well as express trusts that are resident in Canada (some exceptions apply) will be required to file additional information each year. This means that some trusts that were not required to file T3 tax returns will now have to do so.
Typically, a trust would have to file a T3 tax return if the trust has tax that is due or it distributes all or part of its income or capital to beneficiaries. Express trusts are those that are created with the settlor’s intent and can be drafted in writing. This is different than constructive trusts or those that arise due to laws.
What new information will be required?
The information being requested for 2021 and subsequent tax years must report the following:
- The identity of all trustees
- The identity of all beneficiaries
- The identity of all settlors of the trust
- The identity of all people who have the ability to exert control or override trustee decisions over the appointment of income or capital of the trust.
- The government has stated that the change is being made to help improve the collection of ownership information of trusts and to assess the tax liabilities for trusts and their beneficiaries.
- The newly required information will be filed with a T3 return. While the form is not yet available, it will be posted on the federal government’s website.
Which trusts are exempt from providing the additional information?
The following trusts are not required to provide additional requirements:
- mutual fund trusts, segregated funds and master trusts;
- trusts governed by registered plans (i.e., deferred profit sharing plans, pooled registered pension plans, registered disability savings plans, registered education savings plans, registered pension plans, registered retirement income funds, registered retirement savings plans, registered supplementary unemployment benefit plans and tax free savings accounts);
- lawyers’ general trust accounts;
- graduated rate estates and qualified disability trusts;
- trusts that qualify as non-profit organizations or registered charities;
- trusts that have been in existence for less than three months; and
- trusts that hold less than $50,000 in assets throughout the taxation year (provided that their holdings are confined to deposits, government debt obligations and listed securities).
Penalties for those who don’t file
Like most tax requirements, there are penalties for those who fail to comply. The penalty will be $25 for each day of delinquency. The minimum penalty is $100 while the maximum penalty is $2,500. An additional penalty equal to 5% of the maximum value of property held during the tax year will be applied to those who knowingly fail to file a return or don’t do so out of gross negligence.
If you have been appointed a trustee, executor, attorney for property, or attorney for personal care, contact Derfel Estate Law to speak with an estates lawyer. We regularly provide guidance to fiduciaries to ensure they are carrying out all of their obligations and making decisions that are in the best interests of testators or grantors, while minimizing the fiduciaries’ legal risks. Call us at 416-847-3580 or contact us online to schedule a consultation.