New trust reporting rules - Matthew Bota, Harrison Pensa
The Federal Government tabled Bill C-32 on Thursday, November 3, 2022. There is lots of information to parse through in the draft legislation. However, trust practitioners will be pleased to see that new trust reporting requirements will likely be delayed, again, to apply to taxation years that end after December 30, 2023. The draft legislation simply kicks the can down the road though, as concerns relating to the feasibility and cost-effectiveness of the new legislation are not addressed.

Budget 2018 first proposed requirements for 2021 and subsequent taxation years that would require all non-resident trusts that had to file a T3 return, and all express trusts resident in Canada (with limited exceptions), to provide additional information on an annual basis by filing a schedule to the T3 return. This led to concern amongst practitioners as it required a considerable amount of additional information gathering from clients, as well as imposed filing requirements on bare trusts.

The information sought by Canada Revenue Agency (“CRA”) included reporting the identity of all trustees, beneficiaries, and settlors of the trust, along with each person who has the ability (through the terms of the trust or a related agreement) to exert control or override trustee decisions dealing with the appointment of income or capital of the trust, commonly referred to as a protector. This information would be provided through filing the new schedule to the T3 return, which has yet to be produced by CRA.

There are limited exceptions to these new reporting requirements. They can be found in the proposed subsection 150(1.2) of the Income Tax Act. Notably, estates that are graduated rate estates are one of the exceptions.

Penalties for failing to comply with these new reporting requirements can add up quickly. CRA notes that penalties for failing to file or for filing but failing to provide all of the additional information will be equal to $25 for each day of delinquency, with a minimum penalty of $100 and a maximum penalty of $2,500. If a failure to file the return was made knowingly, or due to gross negligence, an additional penalty will apply equal to 5% of the maximum value of property held during the relevant year by the trust, with a minimum penalty of $2,500.

If you have any questions about the implications of these new requirements for you or your clients, please do not hesitate to contact me.

Matthew Bota is a Partner with the Wills & Estates practice group at Harrison Pensa.

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