Bare tusts - multiple properties

Tax Topics
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@justinredmond

I will take a stab at your question but we are talking about 2 different things. Correct, there are countless instances where nominee corporations are set up to hold property on behalf of co-venturers, joint ventures, partnerships, property projects etc. There is certainly a trust relationship between the nominee corporation and the co-tenants or the beneficial owners.

I was trying to envision a situation that involved a section 85 rollover from one party to another party without a proper transfer of legal title… and some type of resulting trust instead. A nominee corporation does not roll over a property to another corporation or to a group of venturers. If I own a property that I want to roll over to a nominee corporation via subsection 85(1) there is no trust relationship between myself and the nominee corporation because it is expected I will transfer title to the nominee corporation. There is a trust relationship between the nominee corporation and whomever it is holding the property for but that is completely different.

In Ontario land transfer tax must be paid on most transfers of property. There are exemptions for certain farm land and a deferral for transfers between affiliated corporations. There is no deferral of land transfer tax for a section 85 rollover.

To your question;

I don’t think you will receive a definitive answer to the question because I don’t believe the CRA has a policy yet. You won’t find the answer in the act itself and I don’t think the CRA has published enough guidance on this specific situation.

As @Versa has discovered the Canada Revenue Agency won’t even offer you an opinion on the laws they write… that’s how bad things are nowadays.

It seems that a bare trust is created in each instance where a separate property is held in trust for another party or parties.

One might presume that if all of the trust documents were uploaded at time of application, if all of the settlors, trustees, and beneficiaries are identical then the filing of a single T3 return would give the Canada Revenue Agency all of the information they need related to the trust. In theory a single filing should suffice if all they are looking for is information on all parties.

It would seem logical that if all the parties to the trust were identical a single T3 return should suffice. Where there is an express trust with multiple properties a single T3 is accepted. Unfortunately, due to the lack of guidance on this issue the only way you can really cover your behind is if a separate filing is made for each property. It’s possible they can penalize you for not filing enough returns but likely can’t penalize you for filing too many.

Bare Trust as defined by CRA: an arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property.

Just a note that nowhere on the T3 return nor Schedule 15 does the Canada Revenue Agency receive a list of assets. If the trust documents detail the assets of the trust then the CRA will receive the information from the trust deed or other documents uploaded with the application for a T3 account.

I guess someone needs to draft and submit a request for an Advanced Tax Ruling.

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22

While you do bring up a valid point, do keep in mind CRA is more concerned with beneficial ownership rather than legal title, and they do take an individual standpoint on each. In this case, the bare trust arrangement that accompanies the S85 was formally in place. Here in BC, the property transfer tax is avoided by way of bare trust, so that was never an issue.

@justinredmond I agree that there shouldn’t be multiple filings for what is essentially that one commercial relationship. @snoplowguy as far as I’m concerned, I would strongly agree with you that the only way to cover your back would be file separately. At least you’re covering all angles a that point… but at the expense of the client. I just don’t see anybody winning with this situation as is. CRA needs to address this yesterday.

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23

Thank you for this thoughtful response. Your logic on the filing seems to be in line with mine, and unfortunately we simply do not have an answer. It’s unfortunate. The government announced these proposals in 2018 budget, so they have had 6 years to flush this all out and we have barely any guidance from them.

Every lawyer I have asked about this has no clue either. Which is also disappointing, because this really is a matter of trust law, absent a provision or interpretation from CRA.

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The other night while I slept I listened to the Video Tax News webinar on Bare Trusts. I believe it was called Expanded T3 Reporting Rules.

They mentioned bank accounts of condominnium or strata management companies and the need to file T3 returns. Someone had a novel idea of lets say having the accountant prepare a template (essentially complete one of the trust returns) letting the client or their staff prepare the rest from the template.

Presumably this could also be done with these other bare trusts for multiple properties if the client wanted to save money.

We did this last year for UHT returns. I prepared a pile of them, gave the client a copy and told them they were on their own for future filings… unless things changed markedly with the return. Of course things did change markedly… it seems likely filings are no longer required. :upside_down_face:

One other thing I picked up on from the webinar… we don’t need to report or distribute income on the T3 of a bare trust. The beneficiary would report the income as they normally would. For instance these ITF accounts or in my case I have to preapre T3’s for one of my lawyer clients that has separate interest bearing term deposits for some clients (pending the outcome of litigation or matrimonial disputes). I need to prepare the T3 returns, but I don’t need to worry about reporting the T5 slips on the T3 or issuing T3 supplementaries to the beneficiaries… which is great because in many cases we don’t even know who is going to end up receiving the interest until cases are settled.

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I have a feeling the specific lawyer trust accounts and the strata trust accounts in many cases, are not bare trusts. One could argue the trustee in these instances has too much autonomy to meet the definition, as the trustee isnt exaclty operating purely as agent for the beneficiary in many cases. If Im right, no penalty relief.

Thoughts?

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And yes, I agree. We have not done any t3 slips to allocate income in bare trust scenarios. I have hiwever been filing the lawyers specific trust accounts with t3 slip allications where there is more than one beneficiary, but the income is allocated to only one party.

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I don’t have any clients involved in the management of strata trusts but I do have 2 lawyers as clients. One of the lawyers had only a mixed trust account during the year (no specific accounts) and the other did have some client specific investment accounts.

I am proceeding as if the specific trust accounts (term deposits etc) are “bare trusts” in accordance with information issued by the Canadian Bar Association.

https://www.cba.org/News-Media/News/2023/December/New-reporting-obligations-for-trust-accounts-Wher

Bare trusts: In most cases a lawyer’s trust account will be a “bare trust,” i.e. a trust under which the trustee does not exercise any independent discretion and is required to follow the beneficiary’s instructions in all respects at all times. CRA has confirmed that while “bare trusts” are subject to the T3 reporting requirements they need not, and should not, report income – instead, that income should be reported on the return of the beneficial owner in the same manner as in the past. We continue to work with CRA to obtain greater precision on how bare trusts should answer certain questions that are set out in the T3 return.

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Note the requirements subject to Subsection 150(1.2(c):

  • Lawyers general trusts, defined as trusts established “under the relevant rules of professional conduct, or the laws of Canada, or a province; to hold funds for the purposes of the activity that is regulated under those rules or laws” are exempt from filings.

    • This means that a pooled, lawyers general trust, such as one that holds multiple clients monies for the purposes as above, is NOT subject to filing a T3, regardless of the duration of the trust or it’s FMV at any time whatsoever within the year.

Given the above, if the funds from a particular client are then segregated into it’s own trust and held with a FMV over $50,000, for a duration of 3 months or more and bears interest at a specified amount; is then subject to a T3 filings.

  • If the funds are less than FMV $50,000, and the trust has a duration of less than 3 months, there is no filing requirement.
  • If the funds are more than FMV $50,000 and the trust has a duration of less than 3 months, there is a filing requirement.
  • If the funds are less than FMV $50,000 and the trust has a duration of MORE than 3 months, there is a filing requirement.

Client-solicitor information is not required to be disclosed where a trust filing is required, pursuant to Subsection 150(1.4). I have no idea what the CRA would require as support for this other than a typed document outlining the nature of the trust.

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I believe that to be correct @Deepinthemoneycall

My understanding is that even if the money in the separate trust account (term deposit etc) was disbursed prior to the end of December, there is still a requirement to file. Although the trust property had been disbursed before December 31st the trust year still ends on December 31st… thus a filing is required. :frowning_face:

Hopefully you bought your options outofthemoney and you weren’t the one writing them… :slightly_smiling_face:

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Haha I’d be lying if I said I never underwrote a call that went deep offside for me … been there done that!

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I wont argue with the CBA, but some lawyers’ trust accounts established under an escrow agreement, for say a business sale, where the vendor and purchaser are both beneficiaries on the account with very different and conflicting interests, I find it difficult to say thats a bare trust. How can the trustee act solely as agent fir the beneficiary when there are two beneficiaries with opposing interests?

At some point, in the case of a dispute, the laywer (trustee) will be in a position to exercise some authority. Albeit limited authority by adhearing to their reading of the terms of the sale agreement, but nonetheless would not solely be agent for all beneficiaries.

Dont need to dive deep here, just my thoughts.