CRA says trustees must report on contingent beneficiaries too

Trustees must provide the Canada Revenue Agency (CRA) with information about contingent beneficiaries under new trust-reporting rules, even if the beneficiary is unlikely to receive a distribution, confirmed a CRA official during the STEP Canada national conference on Tuesday.

For purposes of the reporting rules, the CRA will interpret “beneficiary” to include any person who has the right to compel the trustee to enforce the trust, “regardless of whether that person’s right to the income or capital of the trust is immediate, future, contingent, absolute or conditional on the exercise of the discretion of another person,” said Marina Panourgias, a manager with the CRA’s income tax rulings directorate.

However, determining who is truly a beneficiary “is ultimately dependent on the specific facts and terms of the trust as well as the relevant trust law,” Panourgias said.

New expanded trust reporting rules will require trusts with taxation years ending on or after Dec. 31, 2023, to file an annual trust return that provides information about all beneficiaries, trustees, settlors and protectors of the trust. This information includes their name, address, date of birth, jurisdiction of residence and taxpayer identification number, such as a social insurance number.

During the CRA roundtable session of the STEP conference, Panourgias was asked to consider a common scenario in which a family trust includes a “disaster clause” that directs trustees to distribute assets to extended family members if all the primary family-member beneficiaries have died.

The clause is unlikely to be triggered, especially in cases with many primary beneficiaries. As a result, the trustees may not know the identities of the contingent beneficiaries, making it difficult to provide the required information.

Panourgias said that if the identity of a beneficiary is known or ascertainable with reasonable effort, the information must be provided. If a beneficiary can’t be identified after reasonable effort at the time of filing, the trust must still provide the CRA with “sufficient information so that it can be determined with certainty whether any particular person is a beneficiary of the trust.”

She was also asked if trustees must inform a contingent beneficiary of their status in order to obtain identifying information, considering that doing so would involve alerting a person to a potential, though remote, interest in the trust.

Panourgias said the regulations do not prescribe how the information is to be obtained. However, they indicate that any person or partnership making an information return must make a “reasonable effort”  to obtain a required business number, SIN, or trust account number.

The new trust reporting rules became law when Bill C-32 received royal assent in December. Under prior legislation, generally only trusts with taxes payable for the year or those that dispose of capital property had to file an annual trust return.

Certain trusts are excluded from the new reporting requirements. These include mutual fund trusts and registered plans, trusts in existence for less than three months, and those with less than $50,000 in asset value — as long as those assets consist only of money and securities traded on a designated exchange (as well as certain other assets).

Panourgias indicated the CRA would not consider collectible gold or silver coins or bars, which are sometimes used to “settle” a trust when it is first established, to be “money” for the purposes of qualifying for the trust reporting exception.

“These assets would generally not serve as a medium of exchange in a financial transaction in the same way that Canadian dollars would, for example,” Panourgias said.

Panourgias also confirmed that if a trust held a dividend receivable, it would not be eligible for the reporting exception either.

Rudy Mezzetta

Rudy is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on tax, estate planning, industry news and more since 2005. Reach him at rudy@newcom.ca.