I have a new client (potentially) that has a Henson Trust. It was just set up and already has a Trust number. I am a bit nervous of taking on this client as the only Trusts I ever complete are the GRE Trusts for my deceased clients.
This new client is on ODSP and will only be withdrawing the $10,000 and adding to their RDSP annually. I am aware that this is the threshold so does not need to be added to income. I guess I have 2 questions for anyone familiar with these Trusts
Is the Trust reporting on a fiscal year or calendar year?
Is there anything else I should consider before taking on this client? I am assuming that the Trust return that needs to be filed annually will only be a T3 slip with the dividends/gains of the account from the funds that were disbursed. Am I missing anything?
Is the beneficiary eligible for the Disability Tax Credit (has it been approved by CRA)? If so, the trust could be a Qualifying Disability Trust and eligible for the graduated tax rates (code 904 for the type of trust). Likely, it has a December year-end. You have to report all income earned by the Trust in the tax year and issue T3’s for the income/gains distributed to the beneficiary. They aren’t difficult returns to do but ensure you determine the DTC status of the beneficiary.
Hi Kevin,
Thank you for your reply:)
DTC is on file and beneficiary is an ODSP recipient as well.
So I have a follow up question for you now. For the QDT, do I need to make an election each year when I file for the Trust? Even if the DTC is current?
Also, if the beneficiary withdrawals less than $10,000 per year, does the beneficiary still need to claim the income or can the Trust claim the income?
Sorry for the probably obvious questions, just want to make sure I know what I am doing before I respond to this client.
You want to file the T3 slip showing the distribution to the beneficiary even if the withdrawal is $10K or less. That will make it legal, it reports it properly to CRA, and it’s a deduction to the Trust so if the Trust has more than $10K in income, the Trust will pay less tax (since the distribution is a deduction to the Trust).
As for the QDT, yes, the Trustee and the beneficiary must jointly elect each year for the Trust to be a QDT. I do a couple of these where the Trustee is also the POA for the beneficiary so the Trustee signs for both. The T3QDT form is a part of the TaxCycle T3 package; however, there is a warning at the top that says you must submit the signed form separately.
Perfect, thank you Kevin for taking the time to answer all of my questions:)
I have had a chance to review the Election form- looks pretty straight forward.