We previously sent out articles about the new expanded trust reporting rules and the new form Schedule 15 (as part of the T3 trust reporting) that will require certain trusts to file tax returns and provide information about “reportable entities,” which include beneficiaries, trustees, settlors and persons with the ability to exert influence over trustee decisions (“protectors”) of a trust. The first reporting under these rules will be March 30, 2024 (not March 31, 2024, due to 2024 being a leap year).
Lawyers are in a unique situation in that they often have trust accounts for their clients. The legislation exempts a lawyer’s general trust account. These would be funds that are required under the professional conduct rules – as well as federal or provincial rules – for a purpose that is regulated under these rules. However, all trust accounts are not created equal.
Trust accounts that would not be exempt could be the following:
For those trust accounts not automatically exempt, they could be exempt if they meet one of the following conditions:
The information that will have to be provided for each of the above is:
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. That is, if there was a trust account in existence for six months during the year, it would have to be reported even if it didn’t exist as of December 31 of the year in question. It is the CRA’s position the trustees must make best efforts to obtain required information from beneficiaries.
There is a section of the form to provide information about beneficiaries the trustee cannot list by name. This could be relevant where trust funds are being held as part of a lawsuit where the beneficiaries of the funds have not yet been determined.
Failure to file the required information discussed above will result in a penalty of $25 per day, with a minimum penalty of $100 to a maximum of $2,500.
If it is deemed the failure to file was made knowingly or because of gross negligence, there were false statements or a failure to respond to a CRA demand to file, there will be an additional penalty equal to the greater of $2,500 or 5% of the fair market value of all the property held by the trust. As an example, if there are funds with a fair market value of $20 million held by the trust, this gross negligence penalty could be $1 million per year!
The cost of non-compliance is significant. If you think you or your firm would be affected by these rules, please contact us.
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