Land Transfer Tax When Moving a Home Into a Trust in Ontario

Moving a home into a trust, or out of one, can look like a simple paperwork step. It is not. Several taxes and reporting rules can be affected, and land transfer tax is only one of them.

This article does not set out the land transfer tax rules or exemptions themselves, because they turn on the details of each transfer. Instead it covers the related tax and trust issues you should understand so you can ask a lawyer the right questions first.

Why the answer depends on the details

Whether land transfer tax applies when a home goes into or out of a trust depends on who is transferring, who the beneficiaries are, whether money changes hands and how the trust is set up. Any exemption has conditions. A lawyer should confirm the position for your transfer before a deed is signed or registered.

Many people also assume that if no money is paid, no tax follows. That is a risky assumption, so confirm it for your situation.

The type of trust matters

For tax purposes, a testamentary trust is generally created on and because of a person's death. An inter vivos (living) trust is any trust that is not a testamentary trust.

• An alter ego trust is a living trust created after 1999 by a settlor who was 65 or older, and the settlor must be entitled to all of the trust's income during their lifetime.
• A joint spousal or common-law partner trust is a living trust created after 1999 by a settlor aged 65 or older, where the settlor and their spouse or partner are entitled to all of the income until the later of their deaths.
• A bare trust is an arrangement where the trustee can reasonably be considered to act as agent for all the beneficiaries and has no significant powers or responsibilities.

Each of these is treated differently, so describing your arrangement accurately is the first step.

Income tax effects that follow the home

Generally, a trust is deemed to dispose of its capital property at fair market value every 21 years. For spousal, alter ego and joint partner trusts, the first deemed disposition happens on the day the beneficiary spouse dies, or on the later of the two deaths, rather than on the usual 21-year date.

A trust's taxable income is generally taxed at the highest individual percentage, but graduated rate estates and qualified disability trusts are excluded from that rule.

Estate tax, creditors and reporting

Ontario includes in the estate value any property the deceased owned that was held in another person's name. Putting legal title in another name does not by itself remove a beneficially owned asset from Estate Administration Tax.

Creditors can also matter. Under the federal Bankruptcy and Insolvency Act, a court can void a transfer at undervalue to someone not dealing at arm's length if it was made within one year before the initial bankruptcy event. For a transfer to someone not dealing at arm's length, a transfer made within five years before can also be voided if the debtor was insolvent or intended to defraud, defeat or delay a creditor. A transfer to an arm's-length party can only be voided if it was made within one year before the initial bankruptcy event, the debtor was insolvent or made insolvent by it, and the debtor intended to defraud, defeat or delay a creditor.

What to do next

• Write down who owns the home now, who would own it after the transfer, and who benefits.
• Identify the type of trust and whether anyone is paying anything for the transfer.
• Ask a lawyer whether land transfer tax or an exemption applies before you sign or register.
• Ask an accountant about the 21-year rule, T3 filing and bare trust reporting.
• Check how the transfer affects creditors, a mortgage lender and the estate down the road.

Frequently asked questions