New Trust Filing and Reporting Requirements

The federal 2018 budget announced new trust filing and reporting requirements that are coming into force in the 2021 taxation year.

New Filing Requirements 

As is the case for individuals, a trust is currently only required to file an income tax return for taxation years in which the trust owes tax or disposes of property. As of the 2021 taxation year, most trusts will be required to file income tax returns for every taxation year.

The most common type of trust affected by this change is a family trust set up in the context of an estate freeze to hold the common or future growth shares of a family company. Very often, these trusts have no other assets and have never disposed of their common shares or received any dividends. They therefore have never had to file trust income tax returns. The challenge here is identifying the existence of these trusts in corporate structures. As they are generally otherwise inactive, they have never before been on a tax compliance radar.

A trust created strictly to own a family residence is another type of trust that previously may not have had any filing requirement, but that will have to file income tax returns as of the 2021 taxation year.

New Reporting Requirements

The new trust reporting rules are of a wider application. With limited exceptions, they will require every Canadian resident trust, and certain non-resident trusts, to report personal information about their settlors, trustees, beneficiaries and influencers every year when filing their trust income tax return, starting with the 2021 taxation year.

  • The information required for each settlor, trustee, beneficiary and influencer is their name, address, birth date (for individuals), jurisdiction of residence and TIN (Tax Identification Number). TIN means the Social Insurance Number for individuals, the Trust Account Number for trusts and the Business Number for corporations.
  • A settlor for these purposes will include the person identified on the trust deed as the settlor and who created the trust with a silver coin or nominal cash gift. However, the definition is extended to include anyone who has transferred or lent property to the trust indirectly or directly in non-arm’s length circumstances or who has gifted property to the trust.
  • Similarly, beneficiaries for reporting purposes include current beneficiaries but also future, contingent or discretionary beneficiaries.
  • An influencer refers to anyone having influence over allocations of trust income and capital and therefore may include what is commonly referred to as protectors.

The first year that reporting is required may turn out to be a heavy task for some trustees, especially if there are a multitude of beneficiaries or settlors. In the subsequent years, the task should be easier as it will require only updating the information.

Due to the complex nature of this subject matter, readers are urged to seek out their Richter professionals so their individual situations can be properly assessed. Contact us for more information.