September 2019 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.

(One exception to this rule is the GST new housing rebate. Based on the 2018 Cheema decision of the Federal Court of Appeal, if T co-purchases a new home with O, going onto the purchase agreement just to help O get financing for O’s new home, then even if T is only a bare trustee, O cannot get the new housing rebate. See our September 2018 Tax Letter.)

Quebec introduced a very important rule in May 2019. Any nominee agreement must be disclosed to Revenu Québec within 90 days of signing if it was signed after May 16, 2019 (or by September 16, 2019 if it was signed before May 17, 2019 and the tax consequences continue after that date), with possible penalties for non-compliance.

Last modified on September 13, 2019 12:00 am
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