Reporting Requirements for Trusts

The Joint Committee on Taxation (JC) made a submission in response to the government’s consultation on the draft legislation released on February 4, 2022 relating to the Reporting Requirements for Trusts.

In the 2018 federal budget, the government announced its intention to amend the Income Tax Act (ITA) to impose new filing and reporting obligations for certain trusts. It also proposed that trusts that are subject to the new filing and reporting obligations would be required to report the identity of all trustees, beneficiaries and settlors of the trust, as well as each person who has the ability to exert control over trustee decisions. Draft legislation for this proposal was released on July 27, 2018 and the JC provided its comments on this draft legislation by way of a written submission.

As part of the draft legislation released on February 4, 2022, a revised version of the 2018 draft legislation was released. In addition to delaying the application of the rules and some relieving provisions, the government proposed a new reporting requirement. Under proposed ITA subsection 150(1.3), bare trust arrangements are subject to the reporting requirements and a T3 return would have to be filed for these arrangements.

Given how common bare trust arrangements are, the JC notes that the required filing of a T3 under proposed subsection 150(1.3) for bare trusts will be burdensome. It recommends that proposed subsection 150(1.3) not be enacted and that beneficial ownership information be obtained another way—for example, requiring the beneficial owners to provide beneficial ownership information respecting the bare trust arrangements when they file their own tax return. If this cannot be accommodated, the JC suggests that the government consider legislating a separate reporting requirement, in respect of a bare trust arrangement, for the information requested in proposed Regulation 204.2.