Dear Clients and Friends,
The landscape of trust returns is going through significant changes as the Canadian government is altering its rules around the filing of trust returns. Are you prepared to navigate through the complexities of the new changes?
What’s Changed?
Under the previous rules you may have been exempt from filing a trust return. Trust returns were typically required to be filed only if the trust had tax due or if the trust had disposed of capital property in the tax year. However, under the new rules all trusts are required to file a trust return regardless of activity. The new rules will also require bare trusts to file trust returns annually.
Another new requirement that has been included is that all trusts are now required to provide information on reporting entities. Trusts will provide this information to the CRA through the newly introduced schedule 15.
The new rules affect all trusts with a year ending on December 31, 2023 or after, except for a few exemptions.
More About Schedule 15
The intended purpose of schedule 15 is to increase transparency and prevent financial crimes. Typically, every trust that is filing a trust return is required to complete schedule 15. Schedule 15 will be completed alongside the trust return on an annual basis. The filing due date for trust returns and schedule 15 is 90 days after the year end of the trust.
What is a Reporting Entity?
Reporting entities can include beneficiaries, trustees, controllers of a trust or settlors. Trusts will be required to provide information on any reportable entities even if during the tax year they ceased to be a reportable entity.
What is a Bare Trust?
A bare trust has a trust arrangement where the beneficiary has complete ownership and control over all assets that are held in the trust. The trustee’s role is to have legal title to the assets, but they do not have the authority to make decisions concerning the assets held in the trust. Affects of this change is that if one entity is holding property on behalf of another entity, the CRA is now requiring a trust return to be filed with schedule 15 to report this bare trust agreement.
What Happens if a Trust Return is not Filed?
Trusts that do not file a trust return could be faced with a penalty of:
• 5% of balance owing + 1% of balance owing for each month late
If there is no balance owing:
• $25 per each day late (minimum of $100 to a max of $2,500)
Bare trusts are given some leniency on late filing penalties from the CRA for the 2023 tax year as this will be the first year that trust returns are required for bare trusts.
If there is false information or information willfully left out on a filed return, there will be another penalty.
The penalty is the greater of:
• $2,500
• 5% of the highest FMV of all property held in the trust during the tax year
The information provided was a brief overview on the new rules regarding Trust Returns.
If you have any questions, concerns, or would like more details, please feel free to reach out to the Clearhouse Tax Team at 647‐969‐7382 or info@clearhouse.ca.
Best Regards,
Your Clearhouse LLP Team