Bare Trust Reporting for Real Estate Held in Trust in Ontario

A bare trust usually means one person holds legal title to a property but has no real say over it. They simply hold it for someone else, often a family member, for reasons such as financing, convenience or planning.

If you are the person holding title, you may wonder what you must report and to whom. This article covers the Ontario land transfer tax filing rules and the related income tax points, and it explains where federal trust reporting turns on the details.

What a bare trust means in plain words

In a bare trust, the person on title is sometimes called the nominee or bare trustee. The person for whom they hold the property is the beneficial owner. The trustee generally acts only on the beneficial owner's instructions.

The public register shows legal title. Ontario's land registry is online only and holds the official records for more than 7.4 million parcels. Anyone can search and download property records through OnLand for a fee. The register will not necessarily show that title is held for someone else, which is why a written trust or nominee agreement matters.

Ontario land transfer tax and the 30-day return

Land transfer tax is not limited to registered transfers. It also applies to an unregistered disposition of a beneficial interest in land. It is due 30 days after the disposition, and a trustee must file a return within 30 days of becoming aware of it.

Whether tax is actually payable on a bare trust depends on the facts, including what consideration or assumed mortgage passes and whether beneficial ownership changes. The Ministry of Finance invites questions on these situations. Tax is normally worked out on the value of the consideration, including liabilities assumed such as a mortgage. The Act defines that value broadly, as the gross sale price plus any benefit of whatever kind conferred as part of the arrangement.

• Where land is gifted subject to a mortgage the recipient takes on, tax is payable on the amount owing at registration.
• If no consideration passes at all, no tax is payable because the value is nil, but the Act has no general gift exemption.
• Making false or deceptive statements, such as understating the price, is an offence under the Act. The fine is at least the greater of $1,000 or 50% of the tax that should have been paid, up to twice that tax, and the court can also impose imprisonment of up to two years.
• The Act also contains a general anti-avoidance rule. If a transaction is an avoidance transaction, its tax consequences are set as is reasonable to deny the tax benefit.

Federal trust reporting

Federal income tax reporting for a trust is a separate question from the Ontario land transfer tax return. Whether a particular bare trust is caught, which exceptions apply and what the deadline is depend on the structure, the type of property and the year involved. How this applies depends on your situation, so it is worth confirming with an accountant.

A trust that holds only a family home for a relative is a situation where details matter, such as whether the arrangement is genuinely a nominee arrangement and whether the beneficial owner is a spouse, child or someone else. Ask an accountant to confirm whether a filing is required for your trust and for which years.

Income tax, family law and other issues to keep in mind

If beneficial ownership moves to someone else, there may be income tax consequences. A person who gifts property, or transfers it to a non-arm's-length person for less than fair market value, is deemed to have received proceeds equal to fair market value. A person who receives property by gift or inheritance is deemed to acquire it at fair market value. Transfers of capital property to a spouse or common-law partner, where both are resident in Canada, are generally deemed made at cost, and the transferor can elect out on their return.

If the home was a principal residence, you must report the sale or deemed sale and designate the property on Schedule 3 to claim the principal residence exemption.

Family law may also apply. Both spouses have an equal right to possess a matrimonial home, whoever is on title, and no spouse may sell or mortgage an interest in it without the other's consent, a release in a separation agreement or a court order. If a power of attorney is used, Ontario's land registration system does not accept powers of attorney that contain personal information such as government ID or bank account details.

What to do next

• Put the trust arrangement in writing, signed by the trustee and the beneficial owner.
• Note the date you became aware of any change in beneficial ownership, since the 30-day return period runs from that point.
• Collect purchase records, mortgage statements and proof of who paid what.
• Ask an accountant whether federal trust reporting applies and for which years.
• Ask a lawyer whether any land transfer tax return or payment is due, particularly if a mortgage or payment is involved.

Frequently asked questions