People who hold joint accounts with parents or children might breathe a sigh of relief following proposed changes to the rules around bare trusts. Key takeaway: Bare trusts won’t have to file a T3 return for the 2024 tax year. Nicole Ewing, Director, Tax and Estate Planning, TD Wealth, joins Greg Bonnell to help explain the changes.
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* People who hold joint accounts with their parents or children might breathe a little easier following proposed changes to rules around bare trusts. Nicole Ewing, Director of Tax and Estate Planning, TD Wealth, joins us now to dig into the changes. Nicole, people may have seen the headlines about no filing obligations for this tax year. Important, but there's a lot more going on, isn't there?
* Well, there is. So we have the extension of the exemption from filing bare trusts into 2024 as well. So 2023 exempt, 2024 exempt. But we're also seeing changes to the broader rules that will be applicable for the 2025 tax year and onward. So we've seen a change to the definition of what a deemed trust is, and it includes an express trust. Or an express trust includes a situation where an individual is on title, legal owner.
- There's beneficial owners. And they're essentially-- the legal owner is essentially acting as an agent for that individual. So that's been clarified a little bit, that you are going to have these bare trusts that are going to be caught. Currently, we have a $50,000 exemption with some narrow definitions of what that could include, so cash, certain other types of investments. But if you had GICs, for example, that $50,000 exemption wouldn't apply. That's being expanded, both the amount and the type of assets.
- So going forward, we'll have a limit of $250,000 under which you don't need to file, so $250,000, including cash, GICs, personal use property, as long as all of the trustees are related to the beneficiaries. So if we have trustees related to beneficiaries, we're not going to need to have a filing going forward after 2025. There's another exemption for $250,000 where everything is in cash. You don't need to be related, but that's more for a lawyer's interest account.
* So when I think back to the spring and the conversations you and I had on this, there was a lot of confusion out there as to the bare trust rules and what it actually meant for real people. They're trying to figure it out. And I think about aging parents and people who perhaps have joint accounts with them-- help them pay the bills. Parents may be a joint homeowner with their children. I think a lot of those people are wondering, what's going on? So what do these proposed changes mean for them?
* This is very good news. This is very good news. Essentially, we have a much more narrow circumstances in which people will need to file. So if we're hitting that $250,000 and a parent is on with their child, those interest accounts or joint accounts, you're not going to need to file, period. You don't need to file.
- Going forward into 2025, so December 31, 2025 and onward, there'll also be an exemption for those arrangements where principal residence is in play. So if a parent is on title for their child or a child is on title for their parent, provided that those trustees and beneficiaries are related and that property could qualify as a principal residence, you will also not need to make a filing for that sort of a situation. But that's the 2025 and onward.
* So when I think about 2025, coming up a lot in the conversation, of course, next spring, I'll be sitting down, thinking about the 2024 tax year. As will other Canadians. Fast forward to the spring after that, they'll be looking back on 2025. What's expected to happen?
* So you will still need to determine whether or not you need to file. So there are filing requirements for trusts and for bare trusts. And if you don't meet one of those exemptions, you will need to file. So in 2026, you'd be thinking about your 2025 tax filing obligations. And you'll need to determine whether or not you-- whether or not you have a filing obligation then.
* Right. So very intriguing stuff here. A lot of people had a lot of questions. You've answered a lot of them quite nicely. Still, draft legislation, proposed changes, and people's circumstances can be unique. Perhaps talk to someone if you have questions.
* Absolutely. This is very complex legislation that regular folks are really not in a great position to decipher. This makes it clearer, but there are still going to be circumstances where you do need that professional advice, particularly where there are other issues at play, not just the tax issues, but family law issues, estate law, creditor law. When you own property and you have title held in different names, all of those issues come into play as well. So getting professional advice is very important.
* Always great to get your insights, Nicole. Thanks for this.
* My pleasure.
* Nicole Ewing, Director of Tax and Estate Planning at TD Wealth.
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* Well, there is. So we have the extension of the exemption from filing bare trusts into 2024 as well. So 2023 exempt, 2024 exempt. But we're also seeing changes to the broader rules that will be applicable for the 2025 tax year and onward. So we've seen a change to the definition of what a deemed trust is, and it includes an express trust. Or an express trust includes a situation where an individual is on title, legal owner.
- There's beneficial owners. And they're essentially-- the legal owner is essentially acting as an agent for that individual. So that's been clarified a little bit, that you are going to have these bare trusts that are going to be caught. Currently, we have a $50,000 exemption with some narrow definitions of what that could include, so cash, certain other types of investments. But if you had GICs, for example, that $50,000 exemption wouldn't apply. That's being expanded, both the amount and the type of assets.
- So going forward, we'll have a limit of $250,000 under which you don't need to file, so $250,000, including cash, GICs, personal use property, as long as all of the trustees are related to the beneficiaries. So if we have trustees related to beneficiaries, we're not going to need to have a filing going forward after 2025. There's another exemption for $250,000 where everything is in cash. You don't need to be related, but that's more for a lawyer's interest account.
* So when I think back to the spring and the conversations you and I had on this, there was a lot of confusion out there as to the bare trust rules and what it actually meant for real people. They're trying to figure it out. And I think about aging parents and people who perhaps have joint accounts with them-- help them pay the bills. Parents may be a joint homeowner with their children. I think a lot of those people are wondering, what's going on? So what do these proposed changes mean for them?
* This is very good news. This is very good news. Essentially, we have a much more narrow circumstances in which people will need to file. So if we're hitting that $250,000 and a parent is on with their child, those interest accounts or joint accounts, you're not going to need to file, period. You don't need to file.
- Going forward into 2025, so December 31, 2025 and onward, there'll also be an exemption for those arrangements where principal residence is in play. So if a parent is on title for their child or a child is on title for their parent, provided that those trustees and beneficiaries are related and that property could qualify as a principal residence, you will also not need to make a filing for that sort of a situation. But that's the 2025 and onward.
* So when I think about 2025, coming up a lot in the conversation, of course, next spring, I'll be sitting down, thinking about the 2024 tax year. As will other Canadians. Fast forward to the spring after that, they'll be looking back on 2025. What's expected to happen?
* So you will still need to determine whether or not you need to file. So there are filing requirements for trusts and for bare trusts. And if you don't meet one of those exemptions, you will need to file. So in 2026, you'd be thinking about your 2025 tax filing obligations. And you'll need to determine whether or not you-- whether or not you have a filing obligation then.
* Right. So very intriguing stuff here. A lot of people had a lot of questions. You've answered a lot of them quite nicely. Still, draft legislation, proposed changes, and people's circumstances can be unique. Perhaps talk to someone if you have questions.
* Absolutely. This is very complex legislation that regular folks are really not in a great position to decipher. This makes it clearer, but there are still going to be circumstances where you do need that professional advice, particularly where there are other issues at play, not just the tax issues, but family law issues, estate law, creditor law. When you own property and you have title held in different names, all of those issues come into play as well. So getting professional advice is very important.
* Always great to get your insights, Nicole. Thanks for this.
* My pleasure.
* Nicole Ewing, Director of Tax and Estate Planning at TD Wealth.
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