What Is a Bare Trust Agreement in Canada

[i] A simple trust is also called a bare trust or simple trust. [ii] A trust is an appropriate obligation created by a settlor that requires a person (a trustee) to handle the assets of the trust under its control for the benefit of the beneficiaries. The settlor, trustee and beneficiary may be the same person. [iii] Trident Holdings Ltd.c. Danand Investments Ltd., 64 O.R. (2d) (Ont.C.A.). [iv] De Mond Jr. vs. The Queen, 1999 CanLII 466 (TCC)). [v] Income Tax Act, RSC 1985, c 1 (5th Supp), ss. 104 (1). A bare trust is a legal structure that facilitates the separation of legal and beneficial ownership of property.

For example, person A (first-time home buyer) and person B (parent) may be co-borrowers who own legal ownership of a property. With a bare trust agreement, person A is declared the sole beneficiary of the property and person B is declared without interest in the land. Therefore, securing the first-time home buyer favors Person A and protects Person B from the effects of capital gains tax on the sale of the property. The main advantage of a simple trust is that you can avoid paying land transfer tax (TTP) when it`s time to sell the property. At the time of sale, the property, as well as the simple trust company, is sold to the new owner. The shares of the naked trust are sold to the buyer for one dollar. Once a beneficiary or beneficiary has been designated for a simple trust, the decision cannot be reversed. However, a change in use may occur if the beneficial owner of the property held in a bare trust carries on tax-exempt activities and the simple trust carries on exclusively commercial activities.

Any registered beneficial owner would then be responsible for collecting and transferring GST, filing tax returns, etc. to the extent that they own the trust. From a tax point of view, the trust will not report any taxes because it does not really have beneficial ownership of the property. When it comes to reporting annual income from rents or anything else associated with the property, the trust will have nothing to report, and just as when it comes to selling the property, it has no profit to report; It is the beneficial owner who will report income tax and is responsible for reporting any type of capital gain from the sale of the property. The main feature is the level of control that the alleged client exercises over the alleged agent. In particular, the customer retains economic ownership of all real estate that is the subject of this relationship in an agency relationship. Thus, if an agency relationship requires the agent to acquire the client`s property, a simple trust may arise: if the agent acquires the client`s property with sole responsibility for carrying out the client`s instructions, the agent holds those assets as a mere trustee, while the client enjoys the rights associated with beneficial ownership – that is, the rights to use, own, sell, earn income and destroy the property. If, on the other hand, the alleged agent does not have to accept the client`s instructions to exchange the property, or if the alleged agent has significant independent power, discretion and responsibility over the property, he is neither an agent nor a mere trustee. is a term most commonly applied to Cestui that Trust, the person who enjoys the trust property, but not the legal title that remains with the trustee or personal representative. (Black`s Law Dictionary) Since a simple trust is essentially a principal-agent relationship in which the agent holds legal ownership of assets belonging to the principal, the agency`s principles of law govern a bare trust relationship.

In other words, the principles that determine whether the parties have entered into an agency relationship also affect whether the parties have created a simple trust. A bare trust agreement can help first-time home buyers get full refunds of land transfer tax, even if one of the parents is listed in the title. With a simple escrow agreement between the co-borrowers, the Treasury Department accepts that the parent has no economic interest in the property and allows the child to qualify for the first-time home buyer`s repayment. .