New trust reporting rules apply to trusts wound up in 2023

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Accountant doing trust reporting to Canada Revenue Agency

The federal government’s new trust reporting rules and failure to comply penalties apply to most inter-vivos trusts for taxation years ending on or after December 31, 2023. In the case of trusts that no longer serve a useful purpose, some trustees may believe they can avoid these new rules by distributing all assets to beneficiaries and winding up the trust before the end of 2023.

It is important to note that this planning does not avoid the new trust reporting rules. It is the Canada Revenue Agency’s position that inter vivos trusts must report on a calendar year basis, including the year of wind up. See, for example, TI 2012-0468101E5.

This calendar year filing requirement in the year of wind up may not be widely known because CRA has not followed its own position in the past. We have seen many examples of final T3 returns assessed by CRA with non-calendar year-ends. Perhaps in the past CRA saw no reason to enforce its calendar year position in the final year of a trust. However, in light of the new penalties and the government’s desire for more trust information reporting, it should not be assumed that CRA will assess final T3 returns in 2023 with non-calendar year-ends.

The minimum penalty for failure to comply with the new rules is $25 for each day of non-compliance, with a minimum penalty of $100 and a maximum penalty of $2,500. If a failure to comply is made knowingly or due to gross negligence, an additional penalty equal to the greater of $2,500 or 5% of the maximum value of the trust’s property held at any time during the year applies.

Glen MacMillan, Tax Partner

For assistance with your tax needs, contact a member of the Adams + Miles team today.

The above content is not complete, does not address all scenarios and is intended for general information purposes only.  This blog should not be used or relied on as a substitute for consultation with your Adams + Miles professional advisor.