Levy Salis LLP is pleased to share this insightful report by Wolters Kluwer, created in collaboration with tax expert Kevyn Nightingale, LLM, CPA, and legal professional Francis Hally, LLB, LLM.
This report provides a concise overview of Canada’s evolving trust reporting requirements, particularly focusing on the complexities of bare trusts as defined in the Income Tax Act. With real-world examples and analysis of the 2024 draft legislation, the report delves into amendments refining reporting rules for beneficial ownership.
The content below is just an excerpt. For full insights and to ensure compliance with the latest regulations, download the complete report by clicking the link below.
Kevyn Nightingale, LLM, CPA, CA (ON), CPA (IL), TEP
Francis Hally, LLB, LLM
Wolters Kluwer
August 27th, 2024
Trust reporting has been a major issue in Canadian tax for a number of years, as the Department of Finance attempts to expand the reporting requirements.
Bare Trust
First some background. The term “bare trust” has never been defined in the Income Tax Act (the “ITA”). For years ending after December 30, 2023, a description was added that essentially covered the concept without naming it: “. . . an arrangement under which the trust 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”.[1] Based on Finance’s explanatory notes, we know that the arrangement referred to in the ITA is what is commonly called a “bare trust”.[2] The Canada Revenue Agency (“CRA”) has also issued guidance confirming the same.[3]
Courts have described bare trusts as not being true trusts. They are trusts “where the whole equitable ownership remains in the settlor”.[4] In other words, the trust is only an agent of the beneficiaries.
An agent’s relationship to a principal is substantially different than a trustee’s relationship to a beneficiary.
In CRA’s view, a trustee acts as an agent for a beneficiary when the trustee has no significant powers or responsibilities, the trustee can take no action without instructions from that beneficiary, and the trustee’s only function is to hold legal title to the property. For the trustee to be considered as the agent for all the beneficiaries of a trust, it would generally be necessary for the trust to consult and take instructions from each beneficiary with respect to all dealings with all of the trust property.
A common example of a bare trust is when a property developer (the “buyer”) establishes a trust to hold title to real property, while the developer retains beneficial ownership.[5] This is often done in assembling blocks of adjacent property, so that the current property owners do not learn of the buyer’s larger goal. Otherwise, once most of the properties in a block have been acquired, a later seller can hold out and demand a large premium.
[1] ITA subsections 104(1) and 150(1.3).
[2] Canada. Department of Finance. Explanatory Notes to Legislation Relating to Income Tax. Ottawa,
1988, subsection 104(1).
[3] CRA document 2024-1005851C6.
[4] De Mond Jr. v. The Queen, 99 DTC 893 (TCC), par. 34.
[5] www.canada.ca/en/revenue-agency/services/tax/trust-administrators/t3-return/new-trust-reportingrequirements-t3-filed-tax-years-ending-december-2023.html#toc2.
For full insights and to ensure compliance with the latest regulations, download the complete report by clicking the link below.
The comments offered in this article are meant to be general in nature and are not intended to provide legal advice regarding any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate for your circumstances.
About the author
With more than 30 years of combined experience, we are proud at Levy Salis LLP to provide our clients with tailored services to meet their Canadian, US and Israeli tax and estate planning, US real estate, Quebec real estate and US immigration needs.
Kevyn is a cross-border tax practitioner with over 35 years’ experience focusing on the intersection between individuals and entities with international tax issues.
His work spans the practical and the academic. He speaks and writes on Canadian and US tax issues, most regularly for Wolters Kluwer (CCH), the Society for Trust and Estate Practitioners and the Canadian Tax Foundation. He has published over 100 papers, including three in major journals that were peer-reviewed.
Francis Hally is an associate with Levy Salis LLP and is a member of the Barreau du Québec. Prior to joining Levy Salis LLP, he practiced as an associate for a national Canadian law firm and as a tax manager for two Big Four accounting firms.
