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INVESTMENT EXECUTIVE BYB: TAXES Mid-October 2020
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Get ready for new trust reporting rules
New disclosure rules come into effect in the 2021 tax year
l BY DWARKA LAKHAN changes to trust reporting
requirements first proposed in the 2018 federal budget are coming into effect for the taxation year ending Dec. 31, 2021.
Under the new requirements, non-resi- dent trusts that currently file a T3 return and express trusts (e.g., family trusts) that are resident in Canada — with some exceptions — must report the identity of all trustees, beneficiaries, settlors and each person who can exert control over a trustee’s decision concerning income or capital.
Currently, trusts that don’t earn income or make distributions generally aren’t required to file annual T3 returns. Those that do file aren’t required to report the identities of all beneficiaries.
According to the Canada Revenue Agency (CRA), the changes are meant to improve the collection of beneficial ownership information and to help the CRA assess the tax liability of trusts and their beneficiaries.
Although the 2021 tax reporting dead- line is more than a year away, clients who are connected to trusts should take all necessary steps before the end of this year to meet the new disclosure requirements.
That’s because if a client is a trustee or a beneficiary “for only one day” in 2021, the
trustee will be required to file a T3 return and disclosure for the year, cautions John Fabbro, partner and GTA tax enterprise leader with KPMG Canada in Toronto.
Beginning in the 2021 tax year, a trust must disclose the name, address, date of birth, residence address and taxpayer iden- tification number (i.e., social insurance or business number) for trustees, benefici- aries, settlors and controlling people. The new information must be filed using a sep- arate schedule accompanying the T3.
Trusts that are exempt from the new filing requirements are mutual fund, seg- regated fund and master trusts; employee life and health trusts; qualified disabil- ity trusts; trusts that qualify as non-profit organizations or registered charities; and trusts that have been in existence for fewer than three months and hold less than $50,000 in assets throughout the year.
You should alert clients who are con- nected to trusts that may “no longer serve a useful purpose” or are redundant, says Margaret O’Sullivan, managing part- ner of O’Sullivan Estate Lawyers LLP in Toronto. In these cases, she says, the “trusts should be wound up before year- end” to avoid having to comply with the new disclosure requirements.
Henry Korenblum, estate and taxation
consultant with the Rosedale Family Office, a unit of Wellington-Altus Private Wealth Inc. in Toronto, says clients also could dis- tribute key assets within certain trusts before yearend. For example, trustees may wish to roll out assets to the beneficiaries, if appropriate, or sell assets to a corporation.
Clients also can use wills to bequeath cash legacies instead of using alter ego or partner trusts, suggests O’Sullivan.
Many continuing trusts will have to adjust to the new disclosure rules. Some of those trusts previously did not have to file a return, but will have to do so begin- ning next year, says Fabbro.
For example, trusts that hold a cottage or a vacation home in the U.S. and trusts that hold private company shares previ- ously did not have to file a return if they did not receive any income, O’Sullivan says. But now those trusts will have to. O’Sullivan suggests that some of these trusts may hold valuable assets that must be disclosed, pot- entially revealing previously unknown or hidden tax liabilities for beneficiaries.
As well, collecting the required iden- tification information for connected people and entities could be challenging, Korenblum suggests.
For example, many family trusts were set up to “make them as flexible as
possible and include the broadest class of beneficiaries, including minors and con- tingent beneficiaries,” Korenblum says. Some of these beneficiaries may not know they are beneficiaries, so requesting their social insurance numbers can raise a lot of questions, he contends.
Adds Fabbro: “[Currently], there are no requirements for [beneficiaries] to sign anything or [for the trustee to] dis- close that they are beneficiaries.”
In general, O’Sullivan says, the new rules “can give rise to a number of privacy issues.” Information that was “intended to be pri- vate will now become public,” she says.
Failure to file a T3 return or provide the additional information required can result in costly penalties from the CRA. The penalty for not filing a T3 will be $25 per day, with fines ranging from $100 to $2,500. There will be additional penalties, equal to 5% of the maximum fair market value of property held in the trust during the relevant year, for knowingly failing to file or for gross negligence. IE
Alert clients who are connected to trusts that may “no
longer serve a useful purpose”
A WOMAN OF DISTINCTION We are delighted to celebrate Tina Chow who is a recipient of the Raymond James Women
Financial Advisors Network’s Woman of Distinction Award for 2020.
Tina is based in our Calgary, Alberta corporate branch, and her team is Eighth Avenue Private Wealth Management. She is a Senior Vice President and portfolio manager who earned
the coveted Chartered Investment Manager and Fellow of the Canadian Securities Institute designations in record time, and was in the top 41 of the firm’s producers in 2019. Tina is also licensed as a cross border Financial Advisor and can work with Canadian and US citizens.
Tina’s community spirit is incredibly strong and she is involved in numerous caring initiatives: she is a driving force in numerous philanthropic initiatives. She is a lifelong shareholder volunteer of a Calgary Stampede committee; has co-chaired and co-sponsored the Ronald McDonald House Taste of Home Gala for the past 3 years, raising over $750,000 and she is an active volunteer for the RMHC.
As part of her involvement in the Harry G. Schaefer Mentorship Program at Mount Royal University, Tina helps develop others and makes a difference in the lives of the young women she mentors.
Tina believes advocating for women and those marginalized by society sets an example for
her children and her community. Tina walks the talk and leads by example. She is on the Libin Cardiovascular Institute CV&Me committee, dedicated to advocating for women’s heart health. Tina champions the Fashion Forward project by sitting on a committee, supporting HomeFront, a non-profit working to reduce domestic violence in Calgary. More recently, Tina rappelled down the Sheraton Eau Claire to raise funds for Make-A-Wish in honour of all kids who are brave each and every day. Tina believes all of our strength comes from within and we should first and foremost be our own heroes.
Tina was recognized as a Hero of the Flood for her work during the devastating flood of 2013 in Calgary. Tina is also a member of the Raymond James Canada Foundation advisory committee, and actively volunteers and helps clients create a legacy of giving. She won the first Community Leadership award given out by the Raymond James Canada Foundation.
The Woman of Distinction award recognizes successful female advisors within Raymond James who support the professional growth of others, manage a successful practice and are also actively involved in their communities.
We are proud to have Tina on our team. Congratulations Tina!
Tina Chow
Senior Vice President, Portfolio Manager, Private Client Group
Raymond James Ltd., member - Canadian Investor Protection Fund