Bare tusts - multiple properties

Tax Topics
1

Has anyone heard any guidance on whether we can group together the filings for various properties under one bare trust filing, or do we need to do separate T3s for each property. Specifically, thoughts would be welcomed in the following scenarios:

  1. Same settlor, trustee, and beneficiary. One property contributed in yr1, and a second property in yr 2. No formal trust agreement. I.e. 2 ITF investment accounts opened or something similar for the same family member.
    I could see CRA arguing to aggregate these two accounts if individually they are under $50k, but in total exceed $50k.

  2. Same settlor, trustee, and beneficiary. Real estate title held in favour of a corporation, both transferred under separate formal trust declaration/agreement and separate section 85 elections filed. Could we file this under one T3 if we disclose the separate assets to CRA on application for the trust number and upload both agreements?
    I could see CRA arguing two filings here, because separate declarations of trust, and multiple late filing penalties.

  3. Same settlor, trustee, and beneficiary. Real estate title held in favour of a corporation, both transferred under separate formal trust declaration/agreement and one section 85 election filed for both properties (i.e. both sides of a duplex purchased together). Could we file this under one T3 if we disclose the separate assets to CRA on application for the trust number and upload both agreements?

Im not a trust expert and I cant find any answers pointing in any direction. The principle question is when is a relationship one trust and when is it multiple trusts when all the parties and their roles are the same?

2

What I have seen over the years is generally one Trust Deed with an initial settled property (lets say a $10 bill). There is a provision for the settlor to contribute further property to the trust.

Other than the initial “settled property” (ie the 10 dollar bill) as described in the trust deed the CRA does not get information on any specific holdings, whether it be real estate, bank accounts, shares in corporations, or other valuable assets.

The trust prepares a T3 return to report income and beneficiary distributions (as well as the new schedule 15). The trust does not file a report of the assets under management, just like we don’t file a personal balance sheet with out T1 returns.

Presumably, as long as the settlor, trustees, and beneficiaries are all identical there is technically only one trust. You don’t have a trust for each asset.

Here is a snip of part of a trust deed describing the settled property:

WHEREAS the Settlor has assigned, transferred and delivered to the Trustees one Canadian Fifty Dollar ($50.00) bill (the “Settled Property”) which, together with such further and other cash, securities or other property, as the Settlor may hereafter pay, assign, transfer, loan, deliver or convey to the Trustees, shall be held upon the trusts hereinafter declared for the benefit of the Beneficiaries, such trust to be known as “The John Galt (2044) Family Trust” (the “Trust”).

Here is a clip from a trust deed regarding the contribution of further property;

10.-Settlement of Additional Property

The Settlor may at any time and from time to time add to the Trust Fund by devising,
bequeathing, assigning, transferring, conveying, delivering or making payable to the Trustees cash, securities or other property, and all such cash, securities or other property shall upon acceptance by the Trustees be held by the Trustees subject to the terms hereof. The Trustees shall not accept contributions or gifts to the Trust Fund from any person other than the Settlor.

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3

Just to be clear on what this means;

I rolled over my duplex to a corporation but did not legally transfer title to the corporation? In that case I am holding the property in my name as a bare trustee with the corporation as the beneficiary? This might be a separate trust if the beneficiary (the corporation) is separate and different from any of the other beneficiaries of any trust or trusts created.

4

I agree that where there is a trust deed, and that trust deed expressly allows for the trust to obtain other properties, it would be one trust.

Im concerned about bare trusts where there is no “deed” specifying one way or the other that more properties can be added, and at most there is a “declaration of trust” or a “bare trust agreement” with respect to a specific property, or potentially no documentation at all.

5

For the duplex specifically. Generally lawyers will do separate bare trust agreements or declarations of trust for each address, even though its essentially one transaction. Yes. Sale of beneficial interest only - not transferring legal title. In BC this is very common to avoid property transfer taxes.

6

Here in Ontario, I would insist on a legal trust agreement drawn up by a lawyer.

7

Of course you would…
What you or I would do doesnt necessarily mean it happens all the time. The issue is whether separate legal documents in these cases would constitute one or multiple trusts.

8

In what I would expect is the majority of cases where names were added to bank accounts or property title there is likely no written bare trust agreement.

The Income Tax Act does not specifically require a “trust agreement”, however, wording such as “a return of income that is in prescribed form and that contains prescribed information shall be filed” as well as CRA policy on what constitutes prescribed form may require an agreement.

It seems you can actually register for a trust account number in Represent a Client without uploading a trust agreement. Technically speaking; bare trust agreements can not be backdated, so what would you do in a situation where adult junior was added to the title of his parents cottage back in 2010?

Would merely filing the T3 return and properly completing the Schedule 15’s fulfill junior’s reporting requirements under subsection 150(1) and 150(1.3) ?

9

I think yes for income tax purposes. But as an aside, I believe under trust law, that where land is involved, informal agreements absent an actual trust agreement are not valid and junior could in fact claim his interest. But thats for the lawyers and the courts. Im only really interested in not having late filing penalties for my clients because we filed one T3 when we should have filed 2 from my original post.

10

Bare trusts require a Trust Number now - just like any other trust. When registering for the Trust Number, you must include the Trust Deed and other supporting documents. Per CRA’s instructions:

…if there are no written documents for the trust, please submit a written summary (typewritten or legibly printed) of the nature of the trust arrangement, including the title “Summary of [enter trust name]”. The written summary should include the date of creation of the trust and the full names of the trustees, settlor and beneficiaries.

From section 5.3 on this CRA page:

So, it’s up to the TAXPAYER whether they want to write up a single document or multiple such documents for whatever bare trust arrangements they have. Then the T3 reporting will flow from whatever documents they give you. If you’re ADVISING the taxpayer how to create their documentation, you could always suggest that it will be easier/cheaper to do the required filing/reporting if they group multiple assets together in one document.

11

Im speaking on exisiting relationships. Maybe for bank accounts etc with no formal trust agreements that could work as you suggest by just writing them all in when applying for the trust number, but I dont think we can retroactivly call exisiting separate trusts one trust by stating so on the T3 APP.

Its a matter of trust law and CRAs administraive interpretation of trust law and whether they want separate filings I think. Whether you state its one trust on the T3 APP I think is not determinitive of the actual substance of the trust relationship.

I dont know though… this is so insanely complex, and CRA will likely just walk a bunch of this back like the UHT.

12

Absolutely agree! That’s why I am saying LET THE TAXPAYER DECIDE! If they want our advice, great. But, they should go to a lawyer and get LEGAL advice as well. And preferably, get the lawyer to write up a trust deed or similar document, so we can do the T3 APP and T3 returns according to the legal documentation. That way they can’t blame us for it if it’s incorrect.

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13

Has anyone checked with their insurers to see if their E&O covers either UHT or the new Bare Trusts (neither of which is either accounting or really tax)? The Bare Trusts issue is primarily legal with a side of tax and the UHT is … a mess.

Not sure I’m willing to expose my corp to that extent. I’m happy to provide advice and thoughts…but as to making a pure determination…go find a lawyer. When you’re done, come back and I’ll file the T3. We have all year to do this without penalty, and there will be plenty of difficulty in getting assistance at this point, so can’t see CRA getting their knickers in a twist. (And if they DO penalize, I can’t see judicial agreement with it.)

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14

Found this:
https://www.mindengross.com/docs/publications/tax-planning-your-will
Essentially, CRA will deem a trust to be one trust where the same parties are involved under 104(1). This appears to prevent multiplying access to the graduated rates for testementary trusts, before they introduced the concept of a GRE. However, it also appears that the wording in 104(1) excludes bare trusts.
We will be operating on the assumption that separate trust indentures/deeds/declarations/agreements will require separate filings for bare trusts until CRA provides contrary guidance.
In situations absent a formal agreement, we think we should be able to file only one trust and we will aggregate the balances when determining the $50,000 exemption. This is also likely the most conservative approach.
In situations where real estate is involved, we will still be filing separate trusts, because otherwise, it is our understanding that a written trust document is actual legally required in order for the interest in the property to not follow title. So, for real estate where there is no agreement, but it clearly is a trust - i.e. probate and financing arrangements, we will be filing as a separate trust and recommend an agreement be drawn to memorialize the original intention of the parties.

Comments/opinions would be welcome if anyone sees this differently.

15

I want to share my experience with multiple properties under a single bare trust tax return. I have a client who was appointed as a bare trustee for Property A in 2017 under a formal bare trust agreement. In 2019, the same client was again appointed a bare trustee for Property B. The beneficiary of both bare trust agreements is the same person.

Because of the new trust income tax laws, the client applied for a trust tax number by filing the “T3APP.” Attached to the T3APP is a description of Property A and Property B and the written bare trust agreement made in 2017 and 2019.

About a few weeks later, the CRA acknowledged the application and assigned my client one Trust Tax Account Number.

I prepared and e-filed my client’s 2023 bare trust T3 tax return, which went through without a problem.

I guess that as long as the bare trustee and beneficiary are the same parties, you do not have to prepare a separate T3 bare trust return for individual property. You may just upload another new bare trust agreement when a new property is added to the bare trust.

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16

That is interesting and thank you for this. I’m not convinced as the mere fact that CRA processed everything is not necessarily evidence that they may assess differently at a later date. However, this provides some hope that they may allow for one trust filing…

17

That’s an interest take. But like@justinredmond mentioned, there is no certainty that CRA will assess in the same manner.

My understanding (as I am a few filings in at this point with my firm), is that if the properties are rolled over on a single date, then 1 trust registration would be sufficient to the extent the rollover had occurred in the same transaction. If the properties were each rolled over at different periods (i.e. years apart), then that would constitute two bare trust arrangements, and therefore two filings would be needed.

To give a example of this, I have a client who performed a section 85 a few years back, and the consideration given was common equity in their holdoc. Form T2057 was stated to occur on the transaction date at that time. Since he received consideration in aggregate for the rollover, one would think that only one bare trust arrangement ever took place. That is my perception on this, and has yet to be expanded upon by CRA as of this moment.

18

@Deepinthemoneycall

I’m just trying to wrap my head around this situation;

Presumably a piece of real estate is rolled over to a corporation using the provisions of section 85 but the corporation doesn’t get legal ownership to its property? In order for a trust to have been created presumably the individual (or whomever owned the property that was being sold) simply kept legal title to the property?

One would tend to think that for this to even come close to passing the smell test upon CRA audit there would need to be in place a formal written (express) trust arrangement detailing the legal & beneficial ownership structure rather than a simple or bare trust. Otherwise it’s got subsection 15(1) written all over it.

I’ve seen cases in the past where the CRA reversed an 85 rollover of a vehicle from a proprietorship to a corporation simply because the proprietor was too lazy to change the name on the ownership into the corporation name with the ministry of transport.

19

These arrangements are boiler plate. It happens all the time. This is very common planning, and the bare trust agreement survives audit - both income tax and GST. There is no smell test here. Clear intention of the arrangement is documented in a bare trust agreement. Often to protect liability, title is held by a nominee corporation that serves no purpose other than to hold title of the real estate for the benefit of other parties. The foundation of which is a simple bare trust agreement. By your logic, almost every joint venture or partnership real estate arrangement would be easily unwound.

The real question is when this happens for more than one property, and the lawyers paper it properly, which generally includes more than one bare trust agreement, but each separate agreement has the same settlor, beneficiary, and trustee, do we think we can file one trust?

20

I think your logic makes sense, but have you found anything official that points to this?

Im tired of this. Although the billings are fine, Id rather bill my clients for added value, rather than for multiple trust filings for essentially one commercial relationship.

As an aside, our firm has some property management clients that manage stratas. Under the current rules, one of those clients appears to have 70 separate T3 returns to prepare for the bank accounts used to manage their portfolio of stratas