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On August 12, 2024, the federal government proposed several legislative changes to the bare-trust reporting rules to reduce the number of trusts that will be required to file. The government also announced that bare trusts will not need to file a T3 Trust Income Tax and Information Return for the 2024 tax year. The revised rules for bare trusts will come into effect for the 2025 tax year, applying to taxation years ending after December 30, 2025. This provides a one-year grace period before bare trusts must adhere to the new filing requirements.
Bare trusts are financial arrangements where one person is a beneficiary, and another is a trustee who manages things:
One or more persons have legal ownership of property that is held for the use of, or benefit of, one or more persons (each person that is a legal owner is treated as a “trustee”), and
The legal owner can reasonably be considered to act as agent for the persons who have the use of, or benefit of, the property (each person that has the use or benefit of property is treated as a “beneficiary”).
The examples could include individuals who are joint holders of bank or investment accounts with their parents, primarily added to assist with managing the accounts. Additionally, it could be cases where parents co-own a home with a child to aid in qualifying for a mortgage.
The proposed changes provided certain carve-outs that exclude certain bare trusts from being deemed an express trust should significantly reduce the number of bare trusts that are required to file under the currently enacted rules:
Bare trusts with assets do not exceed $50,000 are exempt, and they can hold any types of assets.
Bare trusts with assets do not exceed $250,000 are also exempt, provided that they are “related party trusts”. A “related party trust” means each trustee and beneficiary is an individual and each beneficiary is related to each trustee. The exemption applies to trusts with property valued at $250,000 or less, provided they hold certain types of assets. Allowable assets include publicly traded stocks and mutual funds, guaranteed investment certificates, bonds and personal use property. Personal-use real estate, such as principal residences and cottages worth more than $250,000, would not qualify for the related-party exemption.
Another new exemption would apply if the legal owners of a property are related individuals, and the property could be designated as the principal residence of a legal owner. There’s no threshold on the value of the real estate. This would exempt an adult child added as a title holder to a parent’s principal residence, or a parent added as title holder on a child’s principal residence to help the child qualify for a mortgage.
Changes to the bare trust rules are contained in the draft legislative proposals to implement numerous 2024 federal budget and other measures. Note these proposed changes have not become law yet, while the government is in its minority state without the support of other parties.
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The content of this pamphlet is prepared by IMPACT CPA LLP for information only and are not intended to provide professional advice as individual situations will differ. We would be please to discuss your specific situation and tailor a tax plan to meet your requirements
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