Holding Property in Trust in Ontario: How a Bare Trust Works

Many families put a home or other land in one person's name while someone else pays for it, lives in it or is meant to own it. A parent may hold title for an adult child, or a friend may hold it for a buyer who cannot yet qualify for a mortgage. In plain terms, this is often called holding property in trust.

A bare trust is the simplest version. The person named on title has no real stake of their own and simply holds the land for the true owner. This article explains the basics, what should be written down, and where the risks sit. It is general information, not advice on your arrangement.

What a bare trust means in plain words

There are two kinds of ownership in a trust. The person on title is the legal owner, often called the trustee. The person the land is held for is the beneficial owner, meaning the one who is meant to enjoy the benefit of the property. In a bare trust, the trustee's job is passive: hold title and follow the true owner's instructions.

The land registry shows who is on title. It does not automatically show who the real owner is. That gap is why the documents matter so much. Anyone can search and download current and historical property records, such as a parcel register, through OnLand for a fee.

What should be documented

A trust that exists only as an understanding can be hard to prove later, especially if the relationship changes, someone dies or a dispute starts. A written trust agreement, signed by everyone involved, is the usual starting point. A lawyer can tailor it to your facts.

• Who the legal owner (trustee) and the beneficial owner are, with full legal names
• The property, identified by its address and legal description
• Who paid the purchase price, the down payment and the mortgage, and who pays taxes, insurance and repairs
• Who can live in the property, rent it out or sell it, and who keeps the proceeds
• What the trustee must do on request, such as transfer title or sign a mortgage document
• What happens if the trustee dies, becomes incapable, divorces or has creditors
• Whether any money passed between the parties, since that affects tax

Land transfer tax and trusts

Ontario land transfer tax is normally calculated on the value of the consideration, meaning the amount paid for the land, including liabilities the buyer assumes such as a mortgage. The Act defines the value of the consideration broadly, as the gross sale price plus any benefit of whatever kind conferred as part of the arrangement.

The Land Transfer Tax Act has no general exemption for gifts of land, but if no consideration of any kind passes, no tax is payable because the tax is calculated on a nil value. If land is gifted subject to a mortgage the recipient takes on, tax is payable on the amount owing at registration, whatever the relationship between the parties.

Trusts add a further point. Land transfer tax 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. Foreign nationals, foreign corporations and taxable trustees buying residential property also pay the Non-Resident Speculation Tax at 25%.

Whether tax applies to putting land into a bare trust, or to taking it out, depends on what consideration or assumed mortgage passes and whether beneficial ownership changes. Confirm this with a lawyer or the Ministry of Finance before you act.

Income tax and other risks

If a person gifts property, or transfers it to a non-arm's-length person for less than fair market value, they are deemed to have received proceeds equal to fair market value. That can trigger a capital gain when a home is gifted to a child. A person who receives property by gift, bequest or inheritance is deemed to acquire it at fair market value.

• Misdescribing the arrangement to save tax is risky. Making false or deceptive statements, such as understating the price, is an offence with fines and possible imprisonment of up to two years.
• Where unpaid tax results from fraud or wilful default, the Minister may assess a penalty of the greater of $500 and 25% of the unpaid tax.
• The Act also has a general anti-avoidance rule, so a transaction that is an avoidance transaction can have its tax consequences set to deny the tax benefit.
• If the property is a family home, spouses have an equal right to possession of a matrimonial home, whoever is on title. No spouse may sell or mortgage an interest in it without the other spouse joining in or consenting, unless a release or court order applies.
• If the trustee dies, an estate normally must be probated if the deceased owned real property that does not pass by right of survivorship. How that applies to land held in trust depends on the facts.

What to do next

Before you agree to be on title for someone else, or ask someone to be on title for you, get the arrangement in writing and have a lawyer review it. Ask an accountant about capital gains and principal residence reporting. The principal residence exemption must be claimed by reporting the sale and designating the property on Schedule 3.

• Gather purchase records, mortgage documents and a current parcel register
• Write down who pays what, and keep proof
• Ask a lawyer whether land transfer tax applies to your steps
• Talk to an accountant about income tax
• Review the trust agreement whenever circumstances change

Frequently asked questions