Are You Ready For The New Trust Reporting Rules?
As you may be aware, CRA introduced new trust reporting and filing obligations during 2018 with an effective date applicable to taxation years ending on December 31, 2021 and beyond. Notwithstanding, legislation has yet to receive royal assent and thus remains in draft. However, it is prudent to expect and prepare as though the new rules will apply to December 31, 2021 returns.
Prior to the newly introduced rules, many personal trusts, whether established for estate planning purposes or to hold personal assets like vacation properties, were exempt from filing a trust return so long as they had:
- no taxes payable
- did not sell capital property
- only allocated nominal income to beneficiaries during the year.
The new rules were introduced to give CRA greater visibility of assets held in trust structures via a significant limitation on the filing exemption. The legislation as currently drafted, limits filing exemptions to trusts that:
- Have been in existence for less than three months at the end of the year; or
- Hold less than $50,000 of assets throughout the year, provided the assets only consist of cash, certain debt obligations, and listed securities.
The significant reduction in filing exemptions will result in many personal trusts having to file for the first time. As such, it is important to note that trusts with a December 31, 2021 year-end have a filing deadline of no later than 90 days after the trusts year-end (i.e. March 31, 2022). Fruitman Kates will require complete filing information no later than March 15, 2022 to allow for timely preparation and to avoid potential late filing penalties.
The new rules do not apply to graduated rate estates, registered savings plans (i.e. RRSP, TFSA, RESP), lawyer’s general trust accounts, and a few other specific types of trusts.
In addition, new reporting rules require the following information to be disclosed for each trustee, beneficiary (including a contingent beneficiary), settlor, and, in some cases a protector (a person that can influence certain decisions of the trustees):
- Date of Birth (for individuals)
- Jurisdiction of residence
- Taxpayer identification number (i.e. social insurance number, business number, trust account number or foreign equivalent)
The current penalty for not filing a trust return is $25 a day, with a minimum penalty of $100 and a maximum penalty of $2,500. The new rules introduce an additional penalty for a false statement of omission in a trust return. The new penalty will apply when a person knowingly or in circumstances amounting to gross negligence makes the omission or fails to file the trust return. The penalty is 5% of the maximum fair market value of the Trust’s assets during the year with a minimum penalty of $2,500.
We encourage all Trustees to review the trust deed and start accumulating the required information as soon as possible to ensure the information is available in time to prepare the December 31, 2021 trust return that is due March 31, 2022.
Please contact your Fruitman Kates advisor if you any questions.