Once you have your family trust set up, how do you stay on the right side of Canada Revenue Agency? There are several tax filings for family trusts that you need to stay on top of.
Tax filings for family trusts: Annual requirements
Usually family trusts require an annual tax return, due March 31st, dependent on circumstances that you’ll need to discuss with your accountant. You must also file T3 tax slips each year that you distribute assets from the trust.
You must exercise care in creating and operating a family trust. For example, Canada Revenue Agency started a pilot project in the Kitchener-Waterloo region focusing on family trusts in 2010/2011. Unfortunately, it met with such a huge “success” that it was implemented more widely! In particular, the audits are focusing on:
- ensuring that the trust was correctly established
- bank accounts were created and used
- bookkeeping was maintained using an appropriate methodology
- trustee resolutions formalized
- the beneficiaries truly received the assets of the trust (as compared to, for example, the parents using the funds supposedly destined for the children)
- loans were properly administered
Fortunately, while few people enjoy audits, if you take reasonable care in setting up and operating the trust, you have nothing to be concerned about, even if you fall under the CRA’s scrutiny. And you can realize many of the advantages of the trust.
Unquestionably, trusts are not for everyone. Often we like to see them after an investor has accumulated a bit of a portfolio or legal advisors have suggested their use for credit protection reasons.
But, the real question is: Is a trust appropriate for you?
Note: In recent years, a number of changes and updates have been made to trust filing obligations, so ensure that you have consulted with your advisors.
Portions of this article appeared in Canadian Real Estate Magazine.
Resources
In Part 1 of this series on family trusts, I discussed what a family trust is and how their potential benefits for real estate investors. Part 2 covered how to use a family trust and real estate to pay for an education-just one example of putting a trust to use.
For additional resources related to family trusts, see:
- Family trusts: Ultimate FAQ for real estate investors
- Family trusts for medical professionals: Saving taxes
- Tax Calendar
More questions?
Still have questions? I want to help you Do wonderful things®, so please contact me today.
Remember – circumstances are unique! This information is summary in nature. Seek out advice from your tax advisor about your specific situation.
