Principal Issues: Can you give an update on any changes that are being proposed to the way T3's are assessed? In particular, there has been some discussion about whether financial statements for trusts will be required in the future. What is the current thinking on this matter?
Position: The AG has recommended that a statement of assets and liabilities (a balance sheet) be required to be filed with the T3 return; her recommendation is under consideration
Reasons: See 2005 AG report, chapter 3 in particular for full details of the AG's recommendations with respect to the assessment and auditing of trusts.
2006 STEP Round Table
Q1. Requirement for Financial Statements
Can you give an update on any changes which are being proposed to the way T3's are assessed? In particular, there has been some discussion about whether financial statements for trusts will be required in the future. What is the current thinking on this matter?
Response
In her report of November 2005, the Auditor-General of Canada suggested that the CRA does not have enough information to adequately assess the tax at risk for trust returns. She identified possible areas of non-compliance relating to the allocation of income to beneficiaries and the 21-year deemed disposition rule. As a result, the Auditor-General recommended that trusts be required to file a statement of assets and liabilities with the trust's income tax return to allow the CRA to better assess the tax at risk in a trust return and focus its audit efforts to those returns most at risk. In addition, she recommended that the CRA:
- systematically evaluate the tax at risk in determining which trust returns to select for audit;
- capture and compile information related to the initial corrections made to the returns as filed in order to assist in the management of assessing activities related to trusts;
- complete an examination of the amounts recorded in our databases relating to the income allocated to beneficiaries to determine the tax revenue implications, if any, of the initial discrepancy identified by the Auditor-General in this area; and
- create a new compliance program to ensure that the income allocated to beneficiaries is reported on a T3 slip and that the beneficiaries include such amounts in their income.
In response, the CRA has initiated a study to identify the nature and extent of compliance issues related specifically to trusts. We are also currently reviewing our approach to verifying the information reported on a trust return as well as the feasibility of requiring trusts to file a statement of assets and liabilities with the return. The Auditor-General expressed the view that such a requirement should not be onerous on the trustee since the trustee is already required to report such information to the beneficiaries of the trust as part of the trustee's stewardship of the trust's assets. The study is still underway.