Deferral of New Trust Reporting Requirements

Author: Peter Weissman, FCPA, FCA, TEP, CEA
Editor: Matthew Cho, CPA, CA, TEP

As we advised in Tax Tip 20-04 , significant additional disclosure and filing requirements for trusts were announced in the 2018 Federal Budget and are scheduled to apply for trust’s 2021 and subsequent tax years.  The legislation requiring the additional requirements is pending and has not received Royal Assent.

The CRA has announced that they will only administer the new reporting and filing requirements once the supporting legislation receives Royal Assent and that the proposed beneficial ownership reporting requirements will not be part of the published 2021 trust return.

With this announcement, it appears that the policy that a trust is generally required to file a T3 return only if the trust has tax payable or distributes all or part of its income or capital to its beneficiaries during the year will continue to apply for a trust’s 2021 tax year.  This means that, contrary to what was expected, inactive trusts or a trusts that have no income or tax payable during the year should not be required to file a T3 return.[1]

In Tax Tip 20-04, we suggested that advisors and trustees consider the following prior to 2021.

  • Advise trustees on these new requirements as soon as possible;
  • Consider formally winding up dormant trusts or trusts that no longer serve a purpose prior to January 1, 2021;
  • Consider beneficiary, trustee and protectors changes prior to 2021 but, remember, these changes could have significant income tax implications;
  • Locate trust documents so you can identify each person that must be reported (e.g., settlors, trustees, beneficiaries and protectors). Additional care should be given in situations where the trust has one or more class of beneficiaries (e.g., corporate beneficiaries).

Although winding up the trust or changing beneficiaries now will not change the 2022 filing requirements if the legislation receives Royal Assent in 2022, trustees and advisors may still want to consider winding up dormant trusts in the year so reporting is only required for one year.

[1]Although there is some risk of penalty for not filing an information return.

TAX TIP is provided as a free service to clients and friends of Cadesky Tax.

The material provided in Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Cadesky Tax cannot accept any liability for the tax consequences that may result from acting based on the contents hereof.

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