Taxpayers may want to review proposed changes to the interest expensing rules and other significant new draft tax legislation that was recently issued by the Department of Finance (Finance). This extensive package of legislation, which was released on 4 February 2022, features a wide range of corporate, personal and trust tax changes.
This article looks at the proposed changes to trust reporting rules. For further details of other changes, please see:
- "Draft tax legislation: limitations on deductible interest expense and other measures"; and
- "Draft tax legislation: mandatory disclosure".
Subsequent articles in this series will provide an overview of:
- immediate expensing; and
- cryptoasset mining.
Finance has released these draft measures for public consultation and will accept feedback by the deadlines specified for each measure.
The draft legislation amends the tax reporting requirements to require certain trusts to provide additional information on an annual basis. This new legislation includes certain changes from the proposed rules that were announced in the 2018 federal budget, including to:
- extend the effective date by one year so the enhanced reporting requirements apply to taxation years that end after 30 December 2022 (instead of taxation years that end after 30 December 2021);
- specify that bare trusts are subject to the new rules; and
- provide additional exceptions for trusts all the units of which are listed on a designated stock exchange.
Finance will accept comments on the draft legislation for this additional trust reporting until 5 April 2022. The new reporting requirements will generally require more trusts to file an income tax return, subject to limited exceptions. Express trusts that are resident in Canada (ie, generally, trusts that have been created with the settlor's express intent or certain civil law trusts) and certain non-resident trusts will be required to report certain information for each trustee, beneficiary and settlor of the trust, as well as for each person who has the ability to exert influence over trustee decisions regarding the appointment of income or capital of the trust (eg, a protector).
The rules also introduce additional penalties for failure to comply. These requirements apply to trusts for years that end after 30 December 2022.
The new legislation expands the trust reporting exceptions in subsection 150(1.2) to include a trust "all the units of which are listed on a designated stock exchange". As a result, an exchange-traded fund will be exempt, even if it does not qualify as a mutual fund trust, as long as all of its units are listed on a designated stock exchange such as the Toronto Stock Exchange or the NEO Exchange. The Canada Revenue Agency recently clarified that affected trusts will not have to meet the proposed additional beneficial ownership reporting and filing requirements until the government officially passes legislation to enact these changes. This new draft legislation confirms that affected trusts will only be required to meet these new obligations for taxation years ending after 30 December 2022.
For further information on this topic please contact Gregory Sanders or Alaina Spec at KPMG Law by telephone (+1 416 777 8000) or email ([email protected] or [email protected]). The KPMG Law website can be accessed at www.kpmg.com.