Dealing with taxes can often be a burdensome and confusing process for trustees to navigate. While we covered some of these obligations in a previous blog, there are several new tax updates that are coming into effect in 2023 that trustees should be aware of:

Underused Housing Tax Act

The Underused Housing Tax Act received Royal Assent on June 9, 2022, and applies retroactively to January 1, 2022. The inaugural tax return is due April 30, 2023. The purpose of the Act is to target vacant or underused properties owned by non-residents, in an attempt to gain some control over the increasingly unaffordable housing market in Canada. We have seen similar taxes implemented on the municipal level, bearing the same intention. The new Act implements a requirement for annual filling for certain owners of residential properties in Canada and subject to certain exemptions, the payment of a 1% tax on the value of vacant or underused residential property in Canada. Failure to comply with the filing requirement will result in a penalty of $5,000 if the owner is an individual, or $10,000 if the owner is not an individual. Every Canadian trust, as well as a partnership and a private corporation that hold title to residential property must file a return each year for properties held as of December 31. However, the trust may be exempt if all of the beneficiaries are Canadian citizens or residents. An important consideration must also be given to vacation properties held in trust. While the tax may not apply due to the residency status of the beneficiaries, an annual filing is still required for the exemption to apply.

Reporting Requirements for Trusts

New trust reporting rules were announced in the 2018 Federal Budget and were scheduled to apply for the taxation year ending after December 30, 2022. However, the application of the new reporting rules for trusts was deferred by one year. Now that these changes are in effect, we know that trusts with taxation year ending on or after December 31, 2023, will be subject to some new reporting rules:

• Most trusts will have to file a T3 return every year.
• Applicable trusts will be required to file a T3 return every year, even if there are no taxes payable and there was no disposition of capital property or distribution of income or capital.
• Additional information will now be required in the T3 return, such as name, address, date of birth, jurisdiction of residence and taxpayer identification number for trustees, beneficiaries, and settlors.
• Failure to comply may result in a penalty of up to 5% of the highest total fair market value of all the property held by the trust in the year.
• Certain trusts will be exempt from these new reporting rules, for example, trusts that have been in existence for less than three months, as well as trusts that hold assets with a total fair market value that does not exceed CA$50,000.

As trustees continue to fulfill their obligations and consider these changes, we recommend that you always speak to a professional in order to assess the applicability of these changes to your situation.

Thank you for reading and have a great day.

Margarita Grup