We previously highlighted new expanded trust reporting rules, first announced in the 2018 federal budget, requiring certain trusts to file tax returns and provide information about “reportable entities” – including trust beneficiaries, trustees, settlors and persons able to exert influence over trustee decisions (“protectors”). However, implementation of these reporting requirements was delayed, only taking effect for taxation years ending after Dec. 30, 2023. The first reporting under the new rules is March 30, 2024 (not March 31, 2024, as it is a leap year).
The Canada Revenue Agency (CRA) has finally posted on its website the form with which trustees must begin reporting beneficial ownership information under the expanded reporting regime for trusts. However, the form left some questions unanswered. Some answers were provided during the CRA roundtable at the recent Society of Trust and Estate Practitioners (STEP) conference. We hope the 2023 Trust Guide will be updated to provide further clarity.
For many trusts, a completed Schedule 15 – Beneficial Ownership Information of a Trust – must be filed annually. Notable exceptions include Graduated Rate Estates (“GRE”), trusts in existence for less than three months at the end of the year and trusts holding assets with a total fair market value of less than $50,000 throughout the year, as long as the trust assets consist only of money and publicly traded securities.
At the 2023 STEP conference, the CRA confirmed a trust that owns collectible gold, silver coins or bars and has a dividend receivable will not qualify for this exemption. The dividend receivable would arise in situations where there has been a delay between the dividend declared and the actual payment date. The question posed to the CRA referred to public company dividends, but the CRA’s comments did not restrict its position to public company dividends. Trusts holding gold or silver coins as trust settlement property, or owning private or publicly traded shares that may have declared but unpaid dividends, should be aware of these exceptions.
Part A of the form is used to indicate whether the trust is reporting the beneficial information for the first time and whether the beneficial ownership for the trust has changed in the year. If the answer is “yes” to either question, the trustee must complete parts B and C (if applicable). If the answer is “no” to both questions, the schedule is complete. The trouble of having to obtain the necessary information may be a one‑time only exercise for most trusts.
A separate Part B must be completed for each reportable entity. If a person is more than one entity type (for example, both a trustee and settlor), a separate Part B is required for each. The information is required for all reportable entities on the trust’s first report. In future years, Part B is only required for any reportable entity added or modified in the tax year.
The trustee must specify whether the reportable entity is a natural person, corporation, trust or other, and provide the name, address, date of birth (if a natural person), jurisdiction of residence and taxpayer identification number for each reportable entity.
If an entity ceased to be a reportable entity in the tax year, the information is still required but won’t be carried forward to the next tax year. Part B must disclose all persons who are beneficiaries under the trust, regardless of how remote their interest is. It may not be possible for the trustee to obtain all necessary information. For example, it may not be desirable for various reasons to advise the beneficiary of his/her interest as a contingent beneficiary, or it may not be possible because the beneficiary does not yet exist – for example, an unborn grandchild or a future spouse of a beneficiary.
This may include persons who are beneficiaries under a “disaster clause,” which directs trustees to distribute assets to more remote family members if all primary family member beneficiaries have died or no longer exist. The clause is unlikely to be triggered if there are multiple primary beneficiaries, and the trustees may not know the identities of the contingent beneficiaries.
The CRA’s position is that trustees must make best efforts to obtain required information from beneficiaries. Known beneficiaries should be included in Part B only.
Part C of the form is used to provide information about beneficiaries the trustee cannot list by name, such as unborn children or grandchildren. The details of the terms of the trust extending the class of beneficiaries to unknown entities must be provided to the CRA in Part C.
Part C must be resubmitted annually in its entirety if any portion of the information requires amendment (not only the change in the unknown beneficiary). Failure to make efforts to obtain information required may result in significant penalties. Some trusts are drafted to include as many potential beneficiaries as possible for tax planning reasons. This practice should be reviewed in view of the reporting requirements.
To avoid any issues, reporting requirements should be discussed with your tax advisor as soon as possible.
Know your obligations