September 2023 Newsletter

A “bare trust” is an interesting concept that can be useful for tax purposes. Unlike a real trust, a “bare trust” is one where person T (the bare trustee) holds legal title to property for person O (the owner), but does not have any discretion as to what to do with it. T must simply transfer or deal with the property as O directs, and has no independent powers or responsibilities. A bare trust arrangement can be set up with a simple one-page agreement specifying these conditions.

A bare trust is often used for holding real property. For example, a numbered company might be used as the registered owner of land, to hide the name of the real owner from public view. The term “nominee” is also used for a bare trustee. T may also be called the “agent” of O, again just acting on O’s instructions. (Technically a bare trust and an agency are different legal concepts, but in practice they may be the same thing.)

In Quebec, where the Civil Code applies (unlike the common law in all other provinces and territories), a nominee may be called a “prête-nom” (literally, a “borrowed name”), and is subject to the rules in the Civil Code.

For tax purposes, a bare trustee or nominee is almost always ignored, and the real owner of the property (O) is considered to own it and deal with it. Thus, O’s original transfer of legal title to T is ignored for tax purposes; and when T transfers the property to a purchaser, O is considered to have sold it and must pay the tax on any profit or gain.

However, as we wrote in our April 2023 newsletter, the existence of a bare trust must be reported to the CRA, starting with the 2023 tax year. The first such return are due April 1, 2024 — that is, 90 days after year-end, but since March 30 in leap year 2024 is a Saturday, the deadline will be extended to Monday. Non-reporting can trigger a penalty of $25 per day up to 100 days, i.e. $2,500 once the return is 100 days late. Deliberate (or grossly negligent) non-reporting or false reporting can trigger a penalty of 5% of the highest value of the trust throughout the year, minimum $2,500.

So while bare trusts can be useful, if you have one you must make sure to file the required information return with the CRA by next March, as otherwise you’ll be subject to severe penalties.

Last modified on September 14, 2023 12:00 am
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