Trust Me Bro

What would a new year be if we didn’t receive some updated tax rules? Well, it wouldn’t feel normal. Although Canada already has some of the most complex reporting on the planet Earth, the CRA is at it again, and has decided to make life just a little more miserable for the average person. 

Most of what I am about to detail below is a little beyond the scope of this blog, and I will fully disclose that I am not an accountant or a tax lawyer, although I did always want to play one on TV, so please take the info I give you, and make sure you speak with a licensed tax professional.

On Dec 30, 2023 ( not Dec 31, 2023 like you might think ) new rules came into effect for the reporting and taxation of trusts. Now, you and I might think that a trust is some complex tax structure set up by the uber wealthy to avoid pay their ” fair” share. And for the most part you would be right. However, the CRA has changed the definition, or perhaps we should call it the interpretation of ” trusts ” or more specifically a ” bare trust ” . So, why should you care as a mortgage agent? Well, here is why:

For the purpose of the new rules, a bare trust is an arrangement under which a trust can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property.  This includes structures commonly used to own real estate, where legal title to land is registered in the name of a nominee company on behalf of beneficial owners.

This means, for example, if mom and dad come to you, and co sign for their kids mortgage – the CRA could ( and based on the new rules, probably will ) interpret that to be a bare trust. Since mom and dad are going on title of said property when they co sign, they are a legal owner, and are required to disclose the asset, file the T3 and also disclose all of the info required by a trust. In most cases, I cannot imagine it would be a taxable event that they are on title, however, the devil is always in the details, and the penalties for not disclosing this arrangement and providing full details of mom and dad in the T3 return could run upwards of $5,000.00. 

Have a client that bought a work truck in the company name, but personally guaranteed the loan? That is a bare trust my friends. If their accountant doesn’t know or catch it, they could be subject to massive penalties, fees or fines for the failure to disclose.

Just the excess expense of filing ones income tax could run into the thousands of dollars as accountants are now required to spend a lot more time, fill in a lot more forms, and bill out a lot more hours per client.

That client that thinks he is a big shot and wants to buy the rental in a Corp name? That now forms a bare trust, and they just increased their tax filing bill every year. Better yet, if they bought said rental in a Corp name and were not aware, the fees for non disclosure could eat up all of their rental profit and then some.

I don’t expect anyone here to be a tax wizard, but knowing a bit here and there, or at least knowing the signs could add tremendous value to your clients, and perhaps keep them out of CRA’s crosshairs. The difference between guaranteeing a mortgage, and co signing a mortgage is the difference between a bare trust being formed, and no bare trust being formed. 

Now, if I asked my clients if they wanted increased tax bills, increased compliance, more forms to fill in, and a potential for the government to track them even more than they already do, I imagine 99.5% would say no. The point is, if you don’t get at least a little knowledge on this – an agent like me that does know it will scoop the deal from you. It opens up a talking point that you may be able to help your clients avoid structures like this, and it makes their life potentially easier. It is one hell of a value add, without even talking about the interest rate. It shows you know your shit, and it shows you aren’t just some person that fell into this by accident. Going above and beyond, and being able to help clients in a lot of areas will ensure they come back time and time again.

If you can’t add value to your client’s lives, they will find someone who can – trust me bro!!