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The Canada Revenue Agency is making a federal case out of the most mundane family financial arrangements.

You thought you were helping your children or grandkids get a start on investing. Turns out you likely created an estate-planning arrangement called a bare trust. Same if you were listed as a joint bank or investment account holder with an aged parent or if you were put on title of an adult child’s home to help them qualify for a mortgage.

Bare trusts must be disclosed through the filing of a T3 trust income tax and information return and a related Schedule 15 form, both of which can be a challenge to navigate. What-if questions about bare trusts have been pouring in for weeks now, in large part because the CRA has failed to provide a reasonable level of explanatory background.

To clarify who needs to file a T3 and who does not, I asked Pam Prior, a tax partner at KPMG in Vancouver, to answer some reader questions. Here are the queries and her responses:

Q: If you have multiple joint bank or investment accounts with an aged parent, do you need to complete a T3 for each separate account?

A: Assuming each account has the same adult child as a joint owner, it would be reasonable to treat all accounts as one bare trust and file one T3 trust return. The accounts do not need to be at the same institution to be treated as one bare trust.

Q: If two adult children are listed on an aged parent’s joint bank or investment account, do both adult kids need to file T3s?

A: This should be treated as one bare trust with two trustees, requiring one T3 trust return.

Q: Is it a bare trust if a parent is a co-owner of a home occupied by an adult child?

A: If only the adult kids live in the house and the parents are on title, the question is who pays for the expenses and would receive shares of the proceeds of the sale of the home. Assuming it is the adult kids (i.e., the parents are only on title to allow the kids to qualify for a mortgage), then this should be a bare trust.

Q: What if parents co-sign a mortgage for their kids and are not on title of a home?

A: If the parents are not on title, then there is no bare trust. They are just guarantors of the mortgage.

Q: What about joint bank or investment accounts held by spouses?

A: This should not be a bare trust. There may be attribution of income and gains/losses back to the contributing spouse, but this is not relevant to the bare trust question.

Q: What about in-trust investment accounts set up by parents or grandparents for minor children who are too young to have their own accounts?

A: Depends – there could be a formal trust arrangement in place, in which case, this would not be a bare trust. Otherwise, yes, generally a bare trust. Note: In a bare trust, the parents or grandparents would be taxed on income, and the minor children would be taxed on capital gains.

Q: What about a joint bank account where the adult child is the account holder and the parent is added as a co-owner (let’s say the adult child is out of the country)?

A: If the parent is just added for ease of administration while the child is out of the country and there is no intent to gift the parent, this is a bare trust.

Q: Would a bare trust apply if someone has trading authority over an investment account held by another person? Trading authority means you’re authorized to buy and sell securities in an account but you’re not a co-owner.

A: Not a bare trust – the individual would need to hold legal title to property on someone’s behalf to be a bare trustee.

Q: If someone removes themself from a joint account with a parent immediately, does that mean they no longer have to file a T3?

A: If the account was in place for more than three months in 2023, a T3 would have to be filed for 2023 and 2024 (based on the current rules), but not thereafter.

One final point worth reinforcing is that there is an exemption on bare trust reporting where the accounts involved have a value of $50,000 or less. This applies to cash in bank accounts and publicly traded securities in investment accounts, with a possible exception for dividend-paying stocks.

Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.

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