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Joint Bank Accounts = Bare Trusts ?!
March 2, 2024
9:47 pm
Norman1
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Bill said
Introduced in 2017 or 2018, we had the same party in power as now, same gov't as far as I'm concerned, it's a priority of theirs.

There is additional info if T3 returns are filed for joint bank accounts, isn't there? Currently CRA usually gets only T-slip showing the primary account holder SIN, CRA doesn't know who the secondaries are.

Yes. But, CRA is not limited to what is in the annual T5 slips of bank accounts. CRA can request full info about the secondary joint owners just like CRA can obtain the full internal transactions of a TFSA which isn't included in the annual TFSA returns.

If CRA would like that full joint owner info to be provided annually, new optional boxes can be added to the T5 slips for the taxpayer ID and taxpayer type of the non-primary joint owners.

Governments always issue stated reasons for doing what they're doing, I'm not as convinced those stated reasons are always the whole picture. The video lady, who claimed she'd been speaking to various people in this field about this for months, seemed to think gov't might be interested in the situation where Alice adds Bob to help her manage her finances. Then again, some professionals like to whip up fear so people will come and pay for their services.

The TD Wealth director seems to think certain joint accounts situations can be a trust. As a trust, a T3 trust return would now have to be filed in spite of the previous exemptions from trust return filing. But, there isn't consensus among those she has spoken with. So, just to be safe, file a T3 trust return with the new Schedule 15 with beneficiary info.

I don't think she believes that the government is interested when Alice adds Bob to her bank account to help manage finances. She just believes the situation could be caught up in the new requirements.

I don't think the government is interested. I don't think there is even a trust created.

Joint bank accounts don't work the same as joint ownership of real estate. With real estate, a court order is needed when a joint owner doesn't agree to a transfer of ownership agreed to by the other joint owner. That's not the case with joint bank accounts.

Any of the owners of a joint bank account can withdraw the money on his/her own, including the owner that funded the account. If the funding owner has both full beneficial ownership and is a legal owner with full transaction capability, what could the other joint owners be holding in trust while the money remains in the joint account?

The resulting trust cases I've seen are about after the funding owner loses legal title to the money either by being removed from the joint account's title after death or after another joint owner takes money out of the joint account.

March 2, 2024
10:15 pm
Norman1
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Bill said

CRA, albeit in an HST-related document here, has its working definition of a bare trust as:
"means a trust where the trustee has legal ownership of the property but has no other duties, obligations and responsibilities with respect to the property as trustee other than to transfer, under the absolute control and instructions of the beneficiary, the title to the property."

So wouldn't a person whose parent adds them to a joint account to manage parent's funds, i.e. whose only function is to spend the money in it as the parent has set out, i.e. transfer title to the property, be a bare trustee?

I would say no. Parent is still on the title of the joint account. The child cannot transfer title of the account or remove the parent from the title without the parent also consenting to the change to the bank.

So, child isn't a bare trustee. There may not even be a bare trust while the parent is still on the title of the account.

March 3, 2024
12:34 am
Loonie
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@bhuc, re: accountant's opinion:

You seem to be making a clear distinction between someone who is managing an account for someone else and whose name is on the account, versus someone who is on the account solely to circumvent probate tax.

In many cases, however, the secondary owner fits into both categories, i.e. is managing the account while the primary is alive but also will inherit the money when they die. How are we to view this situation?

If one is solely managing an account, not going to inherit it, then surely the appropriate tool is a POA, not a joint account with possible trust complications and which could create a hornet's nest for executor?

March 3, 2024
12:52 am
Loonie
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Bill said

When CRA receives a T5 slip they have a pretty good idea of how much money it takes to generate that much interest income, based on general interest rates, though I agree they might be off a bit more in times like this where interest rates are percentage-wise very different than a few years ago.   

They could only guess, and I don't think they would try. They don't know if that T5 income represents a GIC, a savings account, a chequing account or a market-linked GIC which will potentially show much higher (or lower) income when redeemed after five years; or whether it's a combination of these that is represented.

March 3, 2024
7:40 am
SaverJunior
Toronto
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Do spousal joint accounts need to be reported as bare trusts?

March 3, 2024
8:27 am
JPenterprise
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According to my accountant: CRA refers to a fund held in trust for minor kids or someone holding a real estate title on behalf of a non-disclosed beneficial owner.

For investment joint accounts, both title and owners are fully disclosed and reported accordingly, so these types of joint accounts are not bare trusts.

March 3, 2024
9:07 am
Bill
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Norman1, I agree with you. Maybe CRA wording re bare trust should be "means a trust where the trustee has SOLE legal ownership of the property....."

For example an individual who owns a property and registers it in the name of a numbered company would usually create a bare trust situation.

But a parent adding a child to a joint account may create a regular (not bare) trust, the child is operating as trustee of parent's funds, at least according to some experts, and these new rules apply to all trusts, not just bare trusts.

CRA on its own wouldn't add new boxes to the T5 unless the gov't indicated a new interest in joint bank account owner info, and apparently that's not the way the gov't wanted this to go. It's curious to me that they're not clarifying this very common situation, maybe they want uncertainty?

But the consensus on here seems to be that these joint accounts are likely not going to be caught in the new rules, and are not really of interest to the government, guess we'll find out. Maybe someone can phone CRA and ask for a trust account number for filing a T3 Return because they've been added to a parent's bank account and see if CRA will give out a trust account number in that case.

March 3, 2024
9:10 am
Bill
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JPenterprise, re your 2nd point, I was added to a parent's investment accounts and there was no disclosure to CRA as T5s, etc continued to be issued in parent's name & SIN only.

March 3, 2024
10:46 am
AltaRed
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As was suggested in another forum, the big accounting firms will have gotten this figured out on a national scale. It is probably best to lean on them for clarification rather than from those in anonymous forums.

March 4, 2024
9:02 am
Norman1
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Bill said

But a parent adding a child to a joint account may create a regular (not bare) trust, the child is operating as trustee of parent's funds, at least according to some experts, and these new rules apply to all trusts, not just bare trusts.

CRA on its own wouldn't add new boxes to the T5 unless the gov't indicated a new interest in joint bank account owner info, and apparently that's not the way the gov't wanted this to go. It's curious to me that they're not clarifying this very common situation, maybe they want uncertainty?

The new rules don't apply to all trusts. CRA probably thought there was nothing to clarify as just adding a joint owner to an account doesn't alone create an express trust.

According to Budget 2018, the new filing requirement applies to certain trusts:

2. How is the filing requirement changing for trusts?
For 2021 and subsequent taxation years, Budget 2018 proposes that all non-resident trusts that currently have to file a T3 return and express trusts that are resident in Canada, with some exceptions, will have to provide additional information on an annual basis. As a result, for the 2021 and subsequent taxation years, certain trusts will have to file a T3 return where currently they do not have to file a T3 return.

4. What is an express trust?
An express trust is generally a trust created with the settlor's express intent, usually made in writing (as opposed to a resulting or constructive trust, or certain trusts deemed to arise under the provision of a statute).

5. What additional information will have to be provided?
For 2021 and subsequent taxation years, Budget 2018 proposes that all non-resident trusts that currently have to file a T3 return and all express trusts that are resident in Canada, with some exceptions, report the identity of all trustees, beneficiaries and settlors of the trust, along with each person who has the ability (through the trust terms or a related agreement) to exert control or override trustee decisions over the appointment of income or capital of the trust (e.g., a protector).

EY Canada, in its Tax Alert 2024 No. 04 (6 February 2024), confirms that is still the case:

T3 return filing and additional information reporting are now required on an annual basis for express trusts (i.e., trusts that are created with the settlor’s express written or verbal intent, as opposed to other trusts arising by operation of law) that are resident in Canada or deemed resident in Canada, subject to certain exceptions (see below), effective for taxation years ending on or after 31 December 2023.4

Resulting trusts, like the one the applicant tried to have declared in the Pecore case, are not included by the new requirement.

March 4, 2024
2:04 pm
Bill
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Norman1, I guess the TD video lady disagrees with you, she said, based on the various experts she's been talking to for months, that adding a child to a parent's account could result in a trust that is subject to the new requirements. And that situation would seem, if it is a trust, to be an express trust based on EY Canada's definition you cite.

Just noticed on a T slip I received for a joint account, the secondary name is also on the slip so CRA does know who else is joint, though no SIN shown for secondary, but also the new T3 Return Sch 15 shows more comprehensive info re the joint owners.

March 4, 2024
6:39 pm
Norman1
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One needs to do more than just add another owner to an account to expressly create a trust.

There's no intent expressed to create a trust if a parent adds a child to a chequing account, hands the child a book of cheques, tells the child to draw on the account to pay for things during the next year at university, and phone when the money in the account is running low.

The parent is using the joint account to gift money to the child and not create an express trust for anyone.

March 5, 2024
4:15 am
Bill
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I agree, in that case, different situation, obviously a gift.

The concern on here has been the specific, common case where a parent adds a child in order to manage the parent's finances because parent is too old to want to do it for themselves, TD video indicates that situation may fall into new rules.

March 5, 2024
6:21 am
bhuc
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And yet another "tax law firm" guide on Bare Trusts.

https://www.advotaxlaw.ca/post/a-basic-guide-on-bare-trusts-for-canadian-taxpayers#:~:text=If%20the%20legal%20owner%2Ftrustee,STEP%202)%20are%20the%20beneficiaries

The bottom line for me is after talking to the trust dept at CRA this morning.
CRA will make the determination as to whether a bare trust exists, however there is no way of knowing , what source info they used or even when this will happen. .

CRA said we will be notified if and when that occurs and most likely request a T3 be completed. Also no penalty will be imposed at this point according to CRA.
The person I talked to said over 80% of her calls are related to "bare trusts"

The more I investigate this bare trust quagmire the more confused I get.
So I will let CRA do what it does and wait their outcome if any !

March 5, 2024
10:21 am
Norman1
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Bill said
The concern on here has been the specific, common case where a parent adds a child in order to manage the parent's finances because parent is too old to want to do it for themselves, TD video indicates that situation may fall into new rules.

Is the parent actually trying to set up something that is a trust when he or she make the account joint with the child and just instructs the child to pay the parent's bills and other expenses through the account?

That sounds more like an appointment of a limited attorney than creation of an express trust and appointment of one of its trustees.

The parent would be setting up an express trust when he makes the account joint with the child and instructs the child Alice to pay his bills and other expenses through the account while he is alive and to distribute, after his death, the remaining funds equally between a charity and cousins Bob and Cindy. Those are the kinds of situations, like in Lowe Estate v. Lowe mentioned earlier, that have been confirmed by courts.

March 5, 2024
12:30 pm
Bill
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I'm not disagreeing, Norman1, I'm just saying that that's your particular opinion, that this topic re trusts is far from clear both to the various experts and likely to CRA too, and that the TD video is indicating CRA may view parent-child bank account situations as falling into the new reporting requirements for trusts. That's all.

March 11, 2024
5:10 pm
GR
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Lots of interesting opinions on this thread.

Situation: Two siblings have a joint bank account as JTWROS. The primary sibling funded the account 100% and pays 100% of the income tax on interest and the joint account was set up for expanded CDIC coverage and for the money to pass, upon death of one owner, directly to the survivor without being part of the estate.

Is this a "bare trust"? I am preferably interested in a professional interpretation, especially from any lawyers reading this, or from anyone who has received guidance from CRA or a lawyer, for a similar situation. Also, although I don't consider this to be a bare trust, if CRA does, who files the T3 - primary owner or secondary owner? Thanks.

March 11, 2024
8:15 pm
Bill
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Post #19 has CRA's working definition for bare trust.

And even it it's not a bare trust is it just a regular, informal trust?

My understanding is the trustee has to file, that would be the secondary if it's considered to be a trust, I believe. I'm no professional.

March 11, 2024
11:04 pm
Norman1
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If that were a trust, then both joint account owners are trustees. That's because both are legal owners of the account eventhough only one signature may be needed to transact. Kind of a like a trust with two trustees and only one trustee's signature is needed to transact.

That isn't the same as joint tenant ownership of land where the second owner's approval is needed on transactions.

March 12, 2024
7:18 am
Bill
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That sounds better, Norman1. So if it was subject to the new filing requirements and penalties for not doing so then I guess CRA could go after either or both trustees.

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