Principal Changes for 2021 in the Trust Income Tax Return
For taxation years ending after December 30, 2021, a trust that is resident in Canada (other than a trust created by law or by a judgment) must provide additional information about each person who, over the course of the year, is:
- a trustee;
- a beneficiary;
- a settlor;
- a person who can exert control over the decisions made by the trustee with respect to the allocation of income or capital from the trust under the terms of the trust deed or a related agreement.
Due to this new requirement, certain trusts that were previously not required to file a tax return will now be required to file one.
However, the following trust types are exempt from the requirement to provide such information:
- mutual fund trusts;
- segregated fund trusts;
- master trusts;
- trusts governed by the following plans:
- registered pension plan (RPP),
- pooled registered pension plan (PRPP),
- deferred profit-sharing plan (DPSP),
- registered disability savings plan (RDSP),
- registered education savings plan (RESP),
- registered retirement savings plan (RRSP),
- registered retirement income fund (RRIF),
- registered supplementary unemployment benefit plan (RSUBP),
- tax-free savings account (TFSA);
- graduated rate estates (GREs);
- qualified disability trusts (QDTs);
- employee life and health trusts;
- non-profit organizations and registered charities;
- certain government funded trusts;
- cemetery care trusts and trusts governed by an eligible funeral arrangement;
- trusts that have existed for less than three months or that hold property with a fair market value of less than $50,000 throughout the taxation year (in the latter case, the trust funds are limited to deposits, government debt securities and listed securities);
- trusts that are required under professional rules of conduct or the laws of Canada or a province to hold funds for the purpose of carrying on any activity that is regulated under those rules or laws, provided that the trust is not administered as a separate trust in respect of one or more clients.
If the trust fails to file the tax return with the additional information requested by the deadline, it is liable to a penalty of $1,000 and, starting on the second day, an additional penalty of $100 per day until the tax return with the additional information is filed, to a maximum of $5,000.
A trust, other than an excluded trust, that is resident in Canada outside Québec during a taxation year and that, at any time during the taxation year, owns a specified immovable (or is a member of a partnership that owns a specified immovable) is required to file the Trust Information Return (TP-646.1-V).
For taxation years ending after December 30, 2021, testamentary trusts and successions other than graduated rate estates are no longer considered to be excluded trusts and are therefore required to file an information return.
If a trust does not have an identification number because it has never filed an income tax return, it can request one using form LM-58.1.2-V, Application for a Trust Identification Number.
As of 2018, a trust must also:
- enter the trust account number appearing on the federal form T3RET, Trust Income Tax and Information Return, in its income tax return or information return;
- provide that trust account number to any person (including any related person) or to any partnership (including a tax shelter) that is required to file an information return in which this number is entered.
As of March 26, 2021, the trust identification number and account number must appear on all returns, reports or other documents that the trust is required to file under tax legislation.
Failure to provide such information may result in a penalty:
- on or after June 2, 2021, if the omission concerns the trust account number; or
- on or after the date of assent to the legislation introducing this new requirement in the Tax Administration Act, if the omission concerns the trust identification number.
We have assigned an identification number to all trusts that have filed an income tax return. The identification number will be included on all subsequent notices of assessment that we send them. Trusts must include this identification number on all returns, reports or other documents they are required to file under any tax law, including the Trust Income Tax Return (TP-646-V). Trusts must also include the trust account number assigned by the Canada Revenue Agency. Failure to provide this information may result in penalties that could be applied:
- as of June 2, 2021, if the failure concerns the trust account number;
- as of the date of assent of the legislation introducing this new requirement in the Tax Administration Act, if the failure concerns the trust identification number.
We are providing leeway for new trusts (i.e. those that have recently been established or are filing a Québec income tax return for the first time in 2022).
These trusts must usually complete form LM-58.1.2-V, Application for a Trust Identification Number. However, to make the process easier this year, we are allowing new trusts to leave the spaces for the trust identification and account numbers blank. New trusts are therefore not required to file form LM-58.1.2-V. We will assign them an identification number when processing their income tax return. The number will be included on the notice of assessment that we will send them and must subsequently be included on all returns, reports or other documents filed under any tax law.
The dividend tax credit rate applicable to the grossed up amount of ordinary dividends for dividends received or deemed received after December 31, 2020, is decreasing from 4.77% to 4.01%.
If the trust receiving eligible or ordinary dividends is a testamentary trust whose taxation year began in 2020, use the dividend tax credit rates that apply to eligible and ordinary dividends for 2020.
No change has been made to the gross-up rates for dividends.
For more information, see the instructions for lines 326 et 328 of Schedule B in section 5.2 of the Guide to Filing the Trust Income Tax Return (TP-646.G-V).
A health and welfare trust is a trust established by an employer for the purpose of providing health and welfare benefits to its employees. As the tax treatment of such trusts is not explicitly set out in the federal Income Tax Act, we have adopted the administrative policy of the Canada Revenue Agency, which is extending the application of administrative rules for this type of trust to the end of 2021.
Health and welfare trusts established before February 28, 2018, will have to be converted into employee life and health trusts or wound up. Otherwise, they will be subject to the normal income tax rules for trusts.
Transitional rules will be in place to convert health and welfare trusts to employee life and health trusts, and transitional administrative guidance will be announced for the winding-up of health and welfare trusts.