New 2022 Filing Requirements for Trusts

The Canadian government is looking to increase the compliance burden on Canadian taxpayers and accordingly has proposed significant changes that will come into force in 2022.

There are three significant changes in the area of trusts.

1. There will now be harsher penalties for not filing trust tax returns reaching, in certain cases, 5% of the fair market value of the trust’s assets.

Richter Comment: The penalties apply to each return which is not filed. If returns for several years are not filed, the penalties plus the interest thereon can be significant.

2. Trusts that did not have to file tax returns, because they did not have any income, will now be required to file tax returns.

Richter Comment: This includes trusts that own personal property such as homes, either inside or outside of Canada, as well as trusts that own shares of private companies that are currently not paying dividends.

3. Bare trust arrangements used to hold registered title to real estate or other assets belonging to third parties did not have to file tax returns. These arrangements, which do not necessarily require a trust deed, will now be required to file trust tax returns.

Richter Comment: It is often unclear whether a “bare trust” arrangement is in place. Given the magnitude of the penalties for not filing, all situations where the registered owner of an asset, such as real estate or corporate shares, is different than the true owner of the asset, should be reviewed, even if the term bare trust is not used.

None of the above measures have been passed into law and are this still subject to change.