Laid Bare
Written by Jonathan Wright.
For 2023 there are new trust reporting requirements under the Income Tax Act.
These requirements are for a type of trust you may not even have known you had. They’re called “bare trusts”. Put simply, they’re a form of agency relationship: I agree to hold X (real estate say, or a bank account) on your behalf. At the land title office or the bank my name will be on title, but I don’t actually own the property; you do.
Not long ago, these were ignored for tax purposes. But recently the government has become more keen to take a closer look.
You can see why. There is no question that there are bad actors who hide ownership through complex bare trust arrangements in order to evade tax or circumvent clear rules. But the problem for ordinary taxpayers is that they end paying the price for those who don’t follow the law.
Our clients have bare trusts for mundane, and entirely legal, reasons. Joint venturers might want to hold property in one venturer’s name for ease of administration, or the trustee of an alter ego trust might hold property personally on behalf of the trust. A client might manage a bank account for a child too young to hold his own funds, or on behalf of her aging mother for estate planning purposes.
Unlike the people supposedly targeted by this law, these clients have nothing to hide. For these clients, and likely for you, the issue isn’t the disclosure of the arrangement. It’s the burden of filing.
Regardless, the law is the law. So, what to do? There are three steps:
First, identify whether you have a bare trust.
If you do have a trust, work out if you fit into one of the narrow exemptions. We can help!
If you don’t fit in one of the exemptions, contact your accountant.
Every bare trust has to file a T3 return identifying, among other things, the trustees, settlors and beneficiaries for that trust. The definitions for these terms are broad and may require further analysis.
If you are considering whether you need to file a T3 for your bare trust or would like a referral to an accountant, you can feel free to reach out to us. The author can be contacted directly at jonathan@rkwlaw.ca or 604.425.1123.