I have a client that has 6 individual investment accounts for grandkids. Each account has only that child’s name and SIN, and my client’s name. Each account has less than $20,000. Am I correct that this would be 6 separate bare trusts and that T3s do not need to be filed as each is less than $50,000.
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Per the CRA guidance, yes - I believe you have that right.
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Do the accounts say “in-trust”? I struggle with joint accounts because really who’s to say there’s not a 50/50 ownership? I know kids can’t make investment decisions but if the grandparents says she retains 50% beneficial ownership, then there’s no trust here.
That being said are they all for the same grandkid or different kids? Because if they are all different “beneficiaries”, then I believe they would be considered separate.
… but if there is a 50/50 beneficial ownership would all the owners report the interest or other income in relation to their 50% interest or do the grandparents consider the income as belonging to the kids? If the beneficial ownership is 50% why aren’t the owners reporting their proportional share of the income?
In many cases I see the “in trust for” account has the child’s SIN number on the T3 or T5 slip.
Which leads me to something that crossed my desk on Friday. The CIBC has taken steps to no longer offer “informal trust accounts” for their clients. They are blaming their decision primarily on Anti-Money-Laundering regulations but I would think the new trust reporting regulations have more to do with this decision than anything.
CIBC - PFO Letter.pdf (93.6 KB)
There are many factors when considering beneficial ownership, not just who reports the income. And when minors are involved the factors get even more complicated due to attribution rules.
My point is that it is practically impossible to prove beneficial ownership of joint- accounts-with-right-of-survivorship without anything official in writing. Even if one party contributed all the capital, made all the decisions, and reported all the income, there’s nothing stopping the other party from walking into the bank and withdrawing everything. It all comes down to intention but if there’s only a gentlemen’s agreement, what if one gentleman changes their mind down the road and decides they are entitled to the cash? The entire premise that bank accounts should be considered Bare trusts is ridiculous to me.
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In theory yes but this is far too complicated with CRA’s matching program. I have had clients (who are not spouses) try this and get re-assessed by CRA due to matching.
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I have one client who has an anomaly in 2023. She has 3 bank accounts and two of her kids are registered on these three accounts. They have full access to the accounts but know that it is her money so don’t touch it. After I explained to her about this Bare Trust legislation, she summed the balances of all three accounts and the total is just above $50K. The total is typically way lower, but in 2023 her roof suffered hail damage and she received an insurance payment to cover the roof replacement which will be done this summer. Had she known about this bare trust legislation, she would have opened a bank account in her name only and placed the insurance money there. I advised her to get legal advise to draft a bare trust agreement and to file vs risking paying the hefty penalty for being over $50K. She posed a similar question to @Versa, that if the kids have full access to the money, how can you prove there is beneficial ownership and that a trust exists. They can withdraw the money any time they want.
I actually called CRA and spoke to a senior trust agent. I asked him about the situation- adult child with a joint bank account with senior parent. The agent said he wasn’t allowed to tell me what to do. He could only read the legislation to me. I am almost certain there will be an exclusion for these type of inoffensive situations. But in the meantime, we do have to warn our clients that the risk is there.
Incidentally I also asked my lawyer. He said it’s only considered a bare trust if we have a trust document drafted - one for each account. I say we sit tight and wait for guidance on this.