As you may have been advised by your accountant and/or your tax lawyer, the CRA has introduced new disclosure and reporting rules effective for the 2021 taxation year. Will these new requirements open a Pandora’s Box?
That’s the big question in connection with trusts. Historically, neither the assets of trusts nor the names of the beneficiaries had to be divulged, with certain limited exceptions. These trusts also had no obligation to file a tax return because they had no income. However, the new regulation and rules will require certain trusts to file both an information return and an income tax return.
This new requirement is not surprising, since all levels of government are looking for more tax dollars to collect. Several years ago, the Ontario Ministry of Revenue introduced similar new reporting requirements with respect to estate assets in the form of the Estate Information Return.
The new regulations and rules include the obligation to provide a great deal of personal information, including the name, address, date of birth and tax identification number of the settlor, trustees and beneficiaries in addition to details of anyone else who can exert influence over the trustees’ decisions. This new level of heightened disclosure may result in concern amongst some beneficiaries who had previously been able to rely on the privacy and lack of disclosure of personal information provided by trusts.
As a result, many clients may decide to use a will to set out details of gifts to specific beneficiaries, or a specific written Memorandum of Bequests as opposed to a trust. I suggest that if you do have an existing trust, speak to your accountant and tax lawyer sooner rather than later so you can protect your privacy as much as possible. Before you know it, January 2021 will be upon us. Work ahead, not after it is too late.