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Last week, the Canada Revenue Agency put a pause on filing requirements for bare trusts for the 2023 tax year. That may be a relief for some people who share a joint account with a family member. So what happens now? And what happens if you already filed? Nicole Ewing, Director, Tax and Estate Planning, TD Wealth, joins Kim Parlee to help make sense of this move.
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* Last week, in a reversal, the Canada Revenue Agency announced that people who hold bare trusts would not have to file a trust return for the 2023 tax year, just a few days before the April 2 deadline. That may be a big relief to those who share bank accounts with elderly parents and are confused about what a bare trust arrangement is but also potentially frustrating if you filed before the deadline.
- So what now? Nicole Ewing, Director of Tax and Estate Planning at TD Wealth, joins us now to discuss-- the person we call on to always explain these complicated matters. Nicole, let's just start with what happened, first off.
* Right. Well, essentially, we had legislation that was in place for many months. The community of tax professionals has been seeking to understand and has expressed some confusion around how they would expect the CRA to apply these new rules and which bare trusts would have a filing requirement. And after a great deal of reflection and consideration on that, the CRA has announced that it would not require individuals who have a bare trust filing requirement under the legislation to file.
- Now, essentially, that means that there was not sufficient clarity on what a bare trust is for the purpose of these rules, and that they have, essentially, told the public that they are not required to file according to the legislation that's currently on the books. So it's, essentially, an administrative concession.
* What if you had filed before this announcement?
* Well, this is tough. This begs the question of what will be done with that information and how it will be used, and whether it could or should be used for other purposes, whether the position that you took in filing the documentation-- whether you will be held to that in the future if the interpretation or we have additional guidance, whether the information that you provided would continue to be the position that you would have taken.
- And if that information is now on the record, what are you to do about that as a taxpayer? How do you maybe correct that filing? And as well, we have a number of trust numbers that have been issued that will not have filings associated with them. And so part of the question is, if you have a trust number, a "T" number now that you don't need to use, how do you get rid of it?
- Because in the past, you would need to, essentially, file on your return that you are completed with the trust and that you no longer require that number. It doesn't appear that those sorts of considerations have yet been reflected upon. And so it's not really clear on what will happen going forward.
- Now, we do expect that if you have spent money to comply with these rules, if you have incurred legal or accounting costs, those should be deductible against income-- now, not recoverable but deductible. So you won't have tax payable on that. But there is sort of that broader question within the community of, who should bear the cost of the work in progress that was done?
- Because many, many accountants and law firms were, right up until the last minute, really trying to put the work into understanding how to comply with these rules. And when they are no longer required to file, what happens to that work in progress? Can it be billed? And where do those efforts go? So a few remaining questions on that.
* I kid you not. This was a conversation we had at my family's Easter dinner. So certainly, a lot of Canadians were asking about this. So the idea of a bare trust has been a source of confusion for many Canadians. Let's lay out what a bare trust is or what we think it is.
* Well, that's really the crux of the issue here is that we don't-- "we" being the broader tax and legal and financial community-- we really don't have clarity on what the CRA-- and, clearly, the CRA didn't have clarity either-- on what a bare trust would be for filing purposes. And maybe if I back up for just a second-- when we talk about a bare trust, there is a clause in the legislation that defines, for the purposes of that section, what is intended by the term "bare trust."
- But more broadly, we have different pieces of legislation-- so tax law, trust law-- uses the term "trust," and, perhaps, "bare trust" differently, depending on whether we're talking about for trust law purposes or for tax law purposes. And then here, even within the Income Tax Act, we have the term "trust" having different meaning depending on what section you're in.
- So the term "bare trust" is defined in this legislation only applying to this section, but it also referenced-- so a bare trust is a "trust that." So if you first have to know what the definition of a trust is in order to know whether or not you have a bare trust, that begs the question a little bit as well. And, more broadly, when we think about a trust, it essentially requires three certainties.
- So there has to be certainty of intention to create the trust, certainty of object, and certainty of subject-- so essentially the who, what, and why. And a lot of people just weren't clear on whether or not they, in fact, even had a trust, let alone a bare trust.
- And one thing that was missing from this conversation over the last number of months is that this legislation was explicitly to apply to express trusts. Now, in trust law, there are different types of trusts-- so express being one type. We also have resulting trusts and others. And so we do need to, I think, go back to the drawing board a little bit to work through that analysis of what this legislation was intended to apply to, and then hopefully we'll have some additional clarity on what a bare trust is for the purposes of these filing requirements.
* Can I ask-- I've only got a couple of minutes, Nicole. But maybe what are some examples that you believe that there is clarity, that this is a bare trust? And then others where-- for filing purposes-- and also those where there's not. Sorry, I had to put that asterisk in for filing purposes.
* Thank you. Thank you. Please do. Yes. So I think it's very clear that a bare trust corporation or a nominee corporation, for example, that is set up in order to ease developers transferring title to property-- so a trustee of a bare trust corporation that was set up by a lawyer with appropriate documentation, that is a bare trust and would not have the filing obligation. Also, I think fairly clear would be if a child was added to title of their parents' home, and in order to preserve the principal residence exemption, they had documentation completed by a lawyer, again, that just declared that this was a bare trust arrangement, that would be a bare trust. And we wouldn't have an obligation to file.
- Clear in most cases, I would suggest, is joint accounts as between spouses. So generally speaking, in the absence of evidence to the contrary, that is not going to be a trust or a bare trust. Where we still have that really fuzzy question, though, is when we have parents who have added their adult children on to title. And being on title in and of itself is not going to determine whether or not this is a trust or a bare trust.
- It does come down to that question of intent. So you may very well have some of those joint accounts still with the elderly parent that are, in fact, trusts. They may not be bare trusts, but they may actually be full-blown trusts. And they would still have a filing requirement despite the administrative concession of the CRA.
* And that was just the last thing. And I've got, Nicole, 30 seconds here. But the CRA said that bare trusts do not need to do a filing, but there are still new trust reporting rules for everything else.
* Exactly. And those rules were quite expansive. So there used to be a fairly narrow set of circumstances in which a trust would need to file-- essentially, if they had income, or a capital gain, or distributed capital property. That has expanded now so that express trusts need to file, unless they fit into one of these exemptions. So we may have heard about those, the less than $50,000 in cash, the less than three months old, and other examples.
- They would not need to file. But otherwise, those trust reporting rules are still expansive. We still need to be filing our T3s and the Schedule 15 that has that additional information about beneficiaries, and trustees, and all of that information about the interested parties. That still needs to be provided to the CRA.
* Nicole Ewing, always a fount of information. Thank you so much.
* My pleasure.
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* Last week, in a reversal, the Canada Revenue Agency announced that people who hold bare trusts would not have to file a trust return for the 2023 tax year, just a few days before the April 2 deadline. That may be a big relief to those who share bank accounts with elderly parents and are confused about what a bare trust arrangement is but also potentially frustrating if you filed before the deadline.
- So what now? Nicole Ewing, Director of Tax and Estate Planning at TD Wealth, joins us now to discuss-- the person we call on to always explain these complicated matters. Nicole, let's just start with what happened, first off.
* Right. Well, essentially, we had legislation that was in place for many months. The community of tax professionals has been seeking to understand and has expressed some confusion around how they would expect the CRA to apply these new rules and which bare trusts would have a filing requirement. And after a great deal of reflection and consideration on that, the CRA has announced that it would not require individuals who have a bare trust filing requirement under the legislation to file.
- Now, essentially, that means that there was not sufficient clarity on what a bare trust is for the purpose of these rules, and that they have, essentially, told the public that they are not required to file according to the legislation that's currently on the books. So it's, essentially, an administrative concession.
* What if you had filed before this announcement?
* Well, this is tough. This begs the question of what will be done with that information and how it will be used, and whether it could or should be used for other purposes, whether the position that you took in filing the documentation-- whether you will be held to that in the future if the interpretation or we have additional guidance, whether the information that you provided would continue to be the position that you would have taken.
- And if that information is now on the record, what are you to do about that as a taxpayer? How do you maybe correct that filing? And as well, we have a number of trust numbers that have been issued that will not have filings associated with them. And so part of the question is, if you have a trust number, a "T" number now that you don't need to use, how do you get rid of it?
- Because in the past, you would need to, essentially, file on your return that you are completed with the trust and that you no longer require that number. It doesn't appear that those sorts of considerations have yet been reflected upon. And so it's not really clear on what will happen going forward.
- Now, we do expect that if you have spent money to comply with these rules, if you have incurred legal or accounting costs, those should be deductible against income-- now, not recoverable but deductible. So you won't have tax payable on that. But there is sort of that broader question within the community of, who should bear the cost of the work in progress that was done?
- Because many, many accountants and law firms were, right up until the last minute, really trying to put the work into understanding how to comply with these rules. And when they are no longer required to file, what happens to that work in progress? Can it be billed? And where do those efforts go? So a few remaining questions on that.
* I kid you not. This was a conversation we had at my family's Easter dinner. So certainly, a lot of Canadians were asking about this. So the idea of a bare trust has been a source of confusion for many Canadians. Let's lay out what a bare trust is or what we think it is.
* Well, that's really the crux of the issue here is that we don't-- "we" being the broader tax and legal and financial community-- we really don't have clarity on what the CRA-- and, clearly, the CRA didn't have clarity either-- on what a bare trust would be for filing purposes. And maybe if I back up for just a second-- when we talk about a bare trust, there is a clause in the legislation that defines, for the purposes of that section, what is intended by the term "bare trust."
- But more broadly, we have different pieces of legislation-- so tax law, trust law-- uses the term "trust," and, perhaps, "bare trust" differently, depending on whether we're talking about for trust law purposes or for tax law purposes. And then here, even within the Income Tax Act, we have the term "trust" having different meaning depending on what section you're in.
- So the term "bare trust" is defined in this legislation only applying to this section, but it also referenced-- so a bare trust is a "trust that." So if you first have to know what the definition of a trust is in order to know whether or not you have a bare trust, that begs the question a little bit as well. And, more broadly, when we think about a trust, it essentially requires three certainties.
- So there has to be certainty of intention to create the trust, certainty of object, and certainty of subject-- so essentially the who, what, and why. And a lot of people just weren't clear on whether or not they, in fact, even had a trust, let alone a bare trust.
- And one thing that was missing from this conversation over the last number of months is that this legislation was explicitly to apply to express trusts. Now, in trust law, there are different types of trusts-- so express being one type. We also have resulting trusts and others. And so we do need to, I think, go back to the drawing board a little bit to work through that analysis of what this legislation was intended to apply to, and then hopefully we'll have some additional clarity on what a bare trust is for the purposes of these filing requirements.
* Can I ask-- I've only got a couple of minutes, Nicole. But maybe what are some examples that you believe that there is clarity, that this is a bare trust? And then others where-- for filing purposes-- and also those where there's not. Sorry, I had to put that asterisk in for filing purposes.
* Thank you. Thank you. Please do. Yes. So I think it's very clear that a bare trust corporation or a nominee corporation, for example, that is set up in order to ease developers transferring title to property-- so a trustee of a bare trust corporation that was set up by a lawyer with appropriate documentation, that is a bare trust and would not have the filing obligation. Also, I think fairly clear would be if a child was added to title of their parents' home, and in order to preserve the principal residence exemption, they had documentation completed by a lawyer, again, that just declared that this was a bare trust arrangement, that would be a bare trust. And we wouldn't have an obligation to file.
- Clear in most cases, I would suggest, is joint accounts as between spouses. So generally speaking, in the absence of evidence to the contrary, that is not going to be a trust or a bare trust. Where we still have that really fuzzy question, though, is when we have parents who have added their adult children on to title. And being on title in and of itself is not going to determine whether or not this is a trust or a bare trust.
- It does come down to that question of intent. So you may very well have some of those joint accounts still with the elderly parent that are, in fact, trusts. They may not be bare trusts, but they may actually be full-blown trusts. And they would still have a filing requirement despite the administrative concession of the CRA.
* And that was just the last thing. And I've got, Nicole, 30 seconds here. But the CRA said that bare trusts do not need to do a filing, but there are still new trust reporting rules for everything else.
* Exactly. And those rules were quite expansive. So there used to be a fairly narrow set of circumstances in which a trust would need to file-- essentially, if they had income, or a capital gain, or distributed capital property. That has expanded now so that express trusts need to file, unless they fit into one of these exemptions. So we may have heard about those, the less than $50,000 in cash, the less than three months old, and other examples.
- They would not need to file. But otherwise, those trust reporting rules are still expansive. We still need to be filing our T3s and the Schedule 15 that has that additional information about beneficiaries, and trustees, and all of that information about the interested parties. That still needs to be provided to the CRA.
* Nicole Ewing, always a fount of information. Thank you so much.
* My pleasure.
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