New reporting requirements for trusts in Canada came into effect in 2021, which require certain trusts to provide additional beneficial ownership information on an annual basis. The changes are summarised below.
The New Requirements And Reasons For The Changes
Under the changes, from the 2021 tax year, all non-resident trusts must report the identity of all trustees, beneficiaries and settlors of the trust, along with each person who has the ability (through the trust terms or a related agreement) to exert control or override trustee decisions over the appointment of income or capital of the trust.
These rules also apply to most express trusts resident in Canada. Express trusts are generally trusts that are formed with the settlor’s express intent, which is usually made in writing. Certain trusts will be excluded from these measures, and these exemptions are set out in the following section.
To provide this information to the CRA, trusts will be required to file a new schedule with its T3 income tax return regarding its beneficial owners. Even in situations where a trust has no income to report, a T3 form must still be filed alongside this schedule.
Penalties will apply if a trust has a filing obligation but fails to comply, up to a maximum of CAD2,500.
According to the Government, these changes are needed to improve the collection of beneficial ownership information with respect to trusts so that the Canada Revenue Agency can better assess tax liabilities for trusts and their beneficiaries.
Trusts that hold less than USD50,000 in assets throughout the tax year are excluded from the new reporting measures, provided that their assets are confined to deposits, listed securities or government debt obligations. Further, the following types of trust entity fall outside the scope of the new information reporting requirements:
- mutual fund trusts, segregated funds, and master trusts;
- trusts governed by registered plans, including 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;
- qualified disability trusts;
- trusts that qualify as non-profit organizations or registered charities; and
- trusts that have been in existence for less than three months.