Changes to Trust Filing Requirements & Disclosures – Effective 2021

New Rules come into effect for trusts ending Dec 31, 2021 and thereafter.  This includes a requirement to file with additional disclosure even when there is no activity or income. This is part of the government’s goal of improving transparency in efforts to ensure the Canadian tax system’s efficiency and reliability.

This will mean that trusts that typically do not have to file or have never filed, such as a trust holding a vacation property or private shares with no income or activity, will now be required to file or face penalties. In addition, the trust will need to significantly increase the amount of disclosure to include the name, address, date of birth, tax number and jurisdiction of residence for each of the following:

  • Settlor
  • Trustee(s)
  • Beneficiaries
  • Any persons not included above that can exert influence over decisions.

Failing to file the return on time (90 days after year end) will generate penalties of $25 per day to a maximum of $2,500.  Gross negligence penalties could be as high as 5% of the fair market value of the trust’s properties.  This will mean a trust holding vacation property with a value of $2 million could have penalties up to $100,000.

Trusts that have never filed and do not have a trust tax number will be required to submit a copy of the trust deed or will with the initial filing.  A trust application can also be submitted in advance of filing to obtain the trust number.

The following remain exempt from filing and additional disclosures:

  • Mutual fund, segregated fund, and master trusts
  • Registered trust (such as RRSP and TSFA)
  • Employee Health & Life Trusts
  • Cemetery Care trust
  • Lawyers general trust account
  • Graduated rate estates
  • Qualifying Disability Trusts
  • Qualifying non-profit trust
  • Trust in existence for less than 3 months or holding less than $50K in assets (assets limited to deposits, government debt and listed securities) throughout the taxation year

To reduce the administrative burden, trustees may look at dissolving inactive trusts in advance of the new rules. Consider submitting the trust application without tax numbers and begin gathering the additional disclosure information as outlined above.

To assist our clients in meeting these new obligations we will be providing a checklist of any missing information well in advance of the 2021 filing deadline.

If you have any questions regarding these new rules, contact Catherine Fulcher at catherine@farnhamco.ca