New Legislative Provisions Concerning the Registration of TrustsJuly 28th, 2014
1. Letter from the Registrar to certain trusts
1.1. The Enterprise Registrar recently sent a letter to certain trusts informing them of the new obligations to be met by trusts under An Act Respecting the Legal Publicity of Enterprises (“ARLPE”). In this regard, please note that:
(i) The said mailing was further to Revenu Québec’s transmission to the Enterprise Registrar of a list of trusts that might be subject to the new registration obligation for trusts operating a commercial enterprise (it seems that the trusts identified by Revenu Québec are those that filed an income tax return or tax declaration and that have a Québec Enterprise Number (“NEQ”));
(ii) All trusts registered in the Enterprise Register received a letter from the Enterprise Registrar.
1.2. It is possible that an existing trust would not have received a letter from the Enterprise Registrar but would still have an obligation to register (e.g., a trust that was not registered and that never filed a tax declaration).
**2. Which trusts are covered by the new registration obligation **
2.1. The ARLPE requires that every trust operating a commercial enterprise in Quebec be registered.
2.2. In his letter, as examples of trusts operating a commercial enterprise, the Enterprise Registrar cited the following: business trusts, investment trusts and real estate investment trusts.
2.3. According to the doctrine and the jurisprudence, the following are the essential factors for concluding that an enterprise exists:
(i) Having an action plan specifying the economic objectives of the enterprise (not necessarily in writing);
(ii) Holding assets for the purpose of executing the action plan;
(iii) Necessity of a series of the usual legal acts involving trustees (such acts must be done repeatedly, habitually, and frequently);
(iv) Presence of an economic value directly related to the effort of the trustees; and
(v) Proactive role by the trustees.
2.4. The commercial nature of the enterprise seems to have been added to the ARLPE to limit its very broad scope. Essentially, the commercial nature is related to the earning of profits. Meanwhile, the concept of an enterprise, in and of itself, seems to eliminate the “passive holding” of assets by a trust.
3. Deadline for compliance
3.1. Trusts that are already registered can withdraw from the Register if they are not subject or, if they must register, they can remove the information that is not required by the ARLPE. A trust that is registered has 30 days from the change to comply with the new legislation. Since the provisions relating to trusts came into force on July 1, 2014, trusts that are already registered have until July 31, 2014 to comply.
3.2. Trusts that are not registered but that do operate a commercial enterprise have 60 days from the date the obligation arose to register. Since the provisions relating to trusts came into force on July 1, 2014, trusts that are not already registered have until August 30, 2014 to register.
3.3. Trusts operating a commercial enterprise constituted after July 1, 2014 have 60 days from the date the obligation arose to register.
3.4. The cost of registering a trust is $300 and the annual fees will be $79.
**4. Penalty for failure to comply with the ARLPE **
4.1. The penalty for not registering is a fine. There are additional fees for filing after the statutory period.
5. Examples of trusts that are required to register and those that are exempt
5.1. In light of the factors identified in the jurisprudence and the doctrine, we conclude that a trust found in the following list of trusts is a trust that is subject to the obligation to register:
(i) An income trust listed on the stock exchange (an “Income Trust”);
(ii) A real estate investment trust listed on the stock exchange (a “Real Estate Investment Trust”);
(iii) A trust operating an enterprise directly;
(iv) A trust holding a shopping centre;
(v) A trust holding a number of income properties;
(vi) A pension plan constituted under the Supplemental Pension Plans Act; and
(vii) A trust company (constituted under the Act Respecting Trust Companies and Savings Companies.) The list of trust companies can be found on the Website of the Autorité des marchés financiers.
5.2. In light of the factors identified in the jurisprudence and the doctrine regarding what constitutes an enterprise, we conclude that a trust found in the following list of trusts is not a trust that is subject to the obligation to register:
(i) A trust that only holds shares of a company (e.g., a trust created for an estate freeze);
(ii) A trust holding a primary or secondary residence;
(iii) A trust holding an investment portfolio;
(iv) A trust holding just one duplex; and
(v) A trust of which the trustee is a registered trust company.
6.1. In some instances, it will be difficult to determine whether or not a trust is subject to the obligation to register. If there is any doubt regarding whether a trust is subject, we recommend a more thorough analysis of the trust’s activities and objectives.