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Tag: joint ownership

  • What new bare trust tax filing rules mean for Canadians – MoneySense

    What new bare trust tax filing rules mean for Canadians – MoneySense

    What is a bare trust?

    The Income Tax Act does not specifically define a bare trust, Chander. The Canada Revenue Agency (CRA) says: “A bare trust for income tax purposes is a trust 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.”

    Essentially, a bare trust may exist when someone holds legal title to an asset, but some or all of the asset technically belongs—meaning it beneficially belongs—to someone else. Unlike formal trusts that are generally established with a lawyer, a bare trust is informal and can result simply from adding someone’s name to an account or to the ownership of a real estate property.

    Common bare trust situations

    Some common examples of bare trusts are:

    • a parent co-signing a mortgage for their child and going on the title
    • a parent or grandparent who has an account for a minor child or grandchild
    • an adult child with joint ownership of their parent’s bank account, investments or real estate for estate planning purposes

    Who has to file a trust tax return?

    The trustees of the trust need to file a tax return for it. The trustees are the people who own the assets on behalf of others. So, in the case of a parent co-signing a mortgage, it is the parent who needs to file. In the case of an account for a minor child or grandchild, it is the parent or grandparent who owns the account. In the case of an adult child who holds assets jointly with their elderly parent, it is the child who needs to file.

    Only trusts with assets of $50,000 or more are required to file.

    Required tax filings

    Bare trusts are required to file T3 Trust Income Tax and Information Returns for the 2023 tax year. A bare trust may not need to submit as much information as other trusts. The CRA has provided this guidance (see section 3.3) to Canadians:

    Step 1: Identification and other information

    • When using our online services, identify the type of trust as Bare Trust by selecting “code 307, Bare Trust” and provide the trust creation date in the appropriate field.
    • If this is the first year of filing a trust return, send us a copy of the trust document, unless such information or document has been previously submitted. See 5.3 for more information on what documents may be required.
    • Where applicable, provide a response and information related to whether the trust is filing its final return (and if so, provide the date on which the trust has been terminated or wound up in the year). Provide a response and information related to applicable questions on page two.

    Step 5: Summary of tax and credits

    • Complete the last page including the parts “Name and address of person or company who prepared this return” and “Certification.”

    For bare trusts, the remaining parts of the T3 Return can be left blank. All income from the trust property for a taxation year should be reported on the beneficial owner’s return of income.

    Complete all parts of Schedule 15.

    Choosing a name for the trust

    A trust must have a name so it can be identified by the CRA. The CRA gives this example: For a bare trust for which “Ms. Andrews” is the beneficiary, a name like “Ms. Andrews trust” may be appropriate. If there are multiple beneficiaries, the CRA suggests putting the names in alphabetical order based on last name, with the word “trust” at the end.

    How to get a CRA trust number

    A trust also needs a trust number. This number is similar to a social insurance number in that it helps the CRA identify the taxpayer—which in this case is the trust.

    Jason Heath, CFP

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  • Can you save on taxes by owning an investment account with your child? – MoneySense

    Can you save on taxes by owning an investment account with your child? – MoneySense


    When you give cash or assets to a family member to invest, there may be attribution of that income back to you. Attribution causes income to be taxed on the original taxpayer’s income tax return. Attribution applies:

    • Between spouses. So, if a high-income spouse gives money to their low-income spouse to invest, with the goal of reducing their tax payable, the attribution rules apply.
    • To some income between a parent and a minor child. Interest and dividends are taxable back to the parent, but capital gains are taxable to the child. So, you can accomplish some income splitting with a minor child.

    Attribution does not apply between a parent and an adult child, unless the funds are loaned to the adult child at a low interest rate or at no interest rate. In the case of a low- or no-interest loan, where it seems the intention is not to truly gift the money, but to reduce tax payable on the income for a period of time, there is attribution. As with a minor child, it applies to interest and dividends, but not capital gains.

    Can you avoid capital gains tax by gifting an asset?

    When an asset is outright gifted to a child, there’s a deemed disposition. The asset is considered to be sold to the child at the fair market value, and any accrued capital gains become taxable. So, you cannot avoid tax by gifting an asset, like a cottage, for one dollar, for example.

    It does not appear you have made a gift to your son, Jing. You intend to continue to report the income. So, there is no capital gain and there is no attribution. You should just continue to report the income on your tax return.

    Legal ownership vs beneficial ownership

    This is a case where legal ownership—whose name is on an asset—does not match the beneficial ownership—who technically owns the asset. Legally, the account is joint. Beneficially, the account belongs to you.

    This creates tax consequences for you that may be unintended. Trust rules have changed for 2023 and future tax years. If you have an account, like your brokerage account, Jing, where the legal and beneficial ownership are different, you need to file a special tax return.

    New trust reporting rules for 2023

    A T3 Trust Income Tax and Information Return is used by trusts to report trust income as well as information about the settlor, trustees and beneficiaries of the trust. Although you may not have established a trust with a lawyer, or even consider this joint account to be a trust, the Canada Revenue Agency (CRA) considers it a trust.

    The CRA makes an exception for “trusts that hold less than $50,000 in assets throughout the taxation year (provided that the holdings are confined to deposits, government debt obligations and listed securities).”



    Jason Heath, CFP

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  • How to divide the assets of an estate between beneficiaries – MoneySense

    How to divide the assets of an estate between beneficiaries – MoneySense

    First, it bears mentioning that wills typically provide discretion to the trustees to sell, call in or convert into cash any part of an estate in their absolute discretion. The trustees may also have the ability to postpone a sale if they think it’s best. For example, that could be the case if market conditions made it inadvisable to immediately sell a real estate property, business assets or investments.

    An estate trustee typically has the discretion to distribute specific assets to beneficiaries as part of their share of an estate. In other words, if one beneficiary wanted a real estate property, they may elect to receive a smaller share of the rest of the estate, like cash proceeds from bank accounts or from selling other assets. If the real estate value was more than their share of the estate, they may be able to buy the asset from the estate, paying the incremental amount over and above the value of their share.

    It sounds like your parents’ estate has already been distributed to you, though, if your own names are now on these properties and accounts. As such, you should have free rein to do as you wish.

    Should you hold on to assets jointly or sell them?

    In my experience, it’s more common to sell all the assets and distribute the cash that remains (after paying taxes and estate costs) to the beneficiaries. So, your parents’ wishes may not have been so literal as to continue to hold all of their assets jointly.

    Real estate could be distributed to multiple beneficiaries directly rather than sold if the property holds sentimental value, such as a family cottage or farm. This would be less likely with estates like your parents’, which includes five properties, at least a few of which are presumably rental properties.

    There’s no tax advantage to continuing to hold the properties or the accounts, either. For a couple, tax is payable on the second death.

    Should you hold property as joints tenants or tenants in common?

    If you and your siblings want to continue to hold the real estate as investments, Lisa, you could do so jointly. You could own the properties as joint tenants with the right of survivorship, in which case the surviving two siblings would inherit the property upon the first death. This would be uncommon for siblings, though.

    You could alternatively own the properties as joint tenants in common, which would give you control of the asset even upon your death. You could then leave your share to your spouse or children, for example. This is usually preferred to leaving your assets to your siblings, but perhaps none of you have spouses or children. Even if you do not now, you might in the future.

    Jason Heath, CFP

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