Whether you are an individual, a trust or a corporation, there are several important steps you need to follow to prepare your Canadian T3 tax return. These include submitting the correct documents, reporting income earned on your T3 trust, and claiming a foreign tax credit.
Application for a trust account number
During the recent federal budget, the government proposed a new set of rules expand trust reporting requirements. The new rules are designed to close gaps in trust information and provide more information to the Canada Revenue Agency.
The proposed rules will apply to most Canadian resident trusts. Some trusts will be required to file T3 returns every year. In addition, there are additional information disclosure requirements. This information will help CRA assess potential tax liabilities. It is also designed to protect against financial crimes.
The new rules will require trusts to disclose the names of the settlor and other beneficiaries. They will also be required to disclose any agency relationship. People who are able to exert control over the trust or override trustee decisions will also be required to provide identification information. These rules may lead to uncomfortable conversations with beneficiaries.
Some trustees may be reluctant to provide social insurance numbers. In these cases, they may have to seek the assistance of a taxation law firm. It is a good idea to start gathering identification information early on.
A taxation law team may also be able to help evaluate the new rules. They will also be able to explain the new reporting requirements. They may also be able to help you determine if you will have to file a T3 return.
In the meantime, CRA has developed a schedule of information that will be required to be disclosed by trusts. However, there are significant gaps in the information that the government has collected. The new rules will close these gaps, but they will also create larger penalties for non-compliance. For example, a bare trust holding significant value will be subject to a penalty of up to 5% of the fair market value of all trust property.
A trust may also be required to report information regarding designated Aboriginal settlement lands. The Canada Revenue Agency has not yet finalized the schedule of trust information, but there are many examples of information that will be required. These include the name of an individual, the mailing address of an individual, and the date of birth of an individual.
Reporting on the trust’s income
Generally, trusts that have an income or invest funds need to file a T3 Tax return. They also need to provide information about their beneficiaries. However, there are gaps in trust information that the government would like to close. In order to address this issue, the federal government proposed new annual reporting requirements for certain trusts. These new rules have been in the works since the 2018 Federal Budget.
Originally, these new rules were meant to apply to all trusts that had a year-end after December 30, 2021. However, the government has decided to delay implementation for another year. This will give stakeholders time to prepare. In addition, the federal government announced that it will increase penalties for false T3 Returns. The penalty would be at least $250 a day for each false statement or omission. This could rise to 5% of the trust’s total fair market value of all property held in the year.
There are currently a number of exceptions to the proposed new rules. These include trusts with assets under $50,000. Moreover, certain specialized trusts are exempt. However, the proposed rules still do not confirm whether or not contingent beneficiaries are ascertainable. It is still too early to know whether or not this proposed rule will be enacted.
Other trusts that will be subject to the proposed new rules include those that hold real estate, investment accounts, and nominees. The proposed rules will also require trustees of bare trust arrangements to file a T3 Return. They will also be required to report additional information about stakeholders.
Unlike the current T3 Return, the new rules will also require trusts to report their beneficial ownership information. This includes who is a settlor, trustee, and beneficiary. Beneficiaries are generally persons who have a current right to capital or income. The beneficiaries may not know they have an interest in the trust. In order to prevent tax avoidance, the government is introducing these new rules.
The government has announced a public consultation on the new rules. The public can submit their comments until 5 April 2022.
Claim a foreign tax credit
Using a foreign tax credit when preparing a Canadian T3 Tax return is a great way to reduce the amount of income tax you pay. This credit is based on the amount of foreign income taxes that you have paid. The credit can be claimed in two ways. One is by using a foreign tax credit form, and the other is by claiming the foreign tax credits on your Canadian return.
In order to claim the foreign tax credit, you must use the form T2209 (Federal) and T2036 (Provincial). Both forms are updated in version 2021.0 of ProFile. They are not designed to be used as a replacement for filing a paper return, but they can be used to claim the foreign tax credit.
In the past, the best way to claim the foreign tax credit was by claiming the credit on your Canadian return. You could also claim the foreign tax credit by filing a form T1135, Foreign Income Verification Statement. This form can be filed electronically. If you are a foreign property owner, you will also need to fill out Form T1135.
Other deductions were made to the new form T3QDT-WS. These deductions include the climate action incentive credit for residents of Ontario, Saskatchewan, and Manitoba. These credits are available to eligible individuals 18 years of age and older.
There is also a new field in the form T3QDT-WS called box 102, Refund Code. This box allows you to enter your refund code for the climate action incentive credit. If you don’t include the code in your refund, you will be required to pay a penalty. The penalty is $25 for every day you fail to include it. This amount can reach a maximum of 100 days.
The new fields are designed to be used for electronic filing, but they still function well as a pre-assessment review. If you are unsure about which new fields you should be using, you can find information on the tax and tax return page of the ProFile help menu. You can also find more information on the foreign tax credit in the Income Tax Folio S5-F2-C1, Foreign Tax Credit.
CRA rules pertaining to rental properties
ESS CPAs LLP knows the rules pertaining to rental properties and can ensure your filing is completed in accordance with CRA regulations. If you are self-employed, you will be required to report income and expenses on Form T2125 and Form T776, respectively. There is also a capital cost allowance for depreciable capital property that you can claim on Form T2125. In addition, you can claim a 45(2) election to claim a maximum of four years of principal residence exemption.
If you are a non-resident, you will need to include a Canadian tax identification number, a Canadian agent, a Canadian street address, and a Canadian bank account. These identifiers will be assigned to you by CRA after you have completed the form. If you are a self-employed individual, you will also need to report your deductible expenses on Form T776.
If you have an identifying number, such as a social insurance number or business number, you will also need to enter the number in the identifier field. Alternatively, you can use a trust account number or a temporary tax number. If you are not sure of the identifier number, you can check with CRA. You may also be required to provide original copies of paper documents at a later date. If you do not have all the identifiers at the time of filing your return, CRA will request them from you.
If you are preparing a Canadian T3 Tax return pertaining to rental properties, you should include all of the receipts, invoices, and documentation that you have to support your claim. The more services you provide, the more likely your rental operation is considered a business.