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As is well-known, reporting on trust income tax returns has expanded for tax filing periods ending from and after December 31, 2023.  Both the federal and Quebec tax systems now require the filing of a tax return for almost all trusts, with only very limited exceptions, and with the return requiring identifying information for all settlors, trustees, beneficiaries and so-called protectors.  These requirements have come about as part of a world-wide movement to increase transparency as to beneficial ownership of corporations and trusts with a view of reducing tax evasion, money laundering and other criminality.

Some have noted a narrower reporting requirement in some respects on the Quebec trust return as compared to the federal return, which may be justified given the already expansive nature of the reporting.  In this regard, we can observe that whereas the federal trust return (at its Schedule 15) requires also a description (through usually a short narrative) of contingent beneficiaries, including those that cannot be listed by name such as those not yet born, the Quebec trust return (at its Part 5) does not require the naming of such contingent beneficiaries.

What is much less known is that the federal trust return also has more expansive reporting than Quebec in relation to so-called protectors.  Whereas the Quebec trust return and guide describe such a person as a person who can exert control over trustee decisions regarding the appointment of income or capital of the trust, the federal trust return guide and the related regulation (Regulation 204.2(1)) refer to a person who has the ability to exert influence over trustee decisions regarding the appointment of income or capital of the trust.   Perhaps relevant in this regard is that when trust reporting was first announced, in the February 2018 federal budget, the Department of Finance proposed that persons who control trustee decisions would have to be mentioned in the reporting, but then when the first draft legislation for trust reporting was introduced in July 2018, the reference was changed to a person exerting influence over trustee decisions, and without any discussion as to reasoning for the change.  On this issue of persons playing a part in trustee decisions, we prefer the apparent Quebec approach of looking for control, and we would hope that the CRA would also apply that approach federally, but caution dictates that for the federal trust return, trust deeds and related agreements be reviewed carefully to also determine persons who may be exerting influence.

This and similar issues are referred to in the paper I co-wrote for the December 2024 Canadian Tax Foundation National Conference, titled “Trust Reporting Rules Under Federal and Quebec Legislation”, which is at this link:   https://spso.nyc3.digitaloceanspaces.com/wp/home/sysadmin/spiegelsohmer.com/htdocs/cms/2024/12/TPPC4_PPR_Trust-Reporting-under-Federal-and-Quebec-Legislation_D.-Christian-and-D.-Frajman18306656.1.pdf

An updated version of that paper will be published shortly in the Canadian Tax Foundation’s 2024 Conference Report.