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Bare Trusts


In the realm of financial responsibility, few things carry as much weight as co-signing loans for loved ones. It is a gesture of support, a step towards securing a future, but it also entails legal and tax implications that many might not fully grasp. Recently, a spotlight has been cast on co-signing loans, particularly in the context of Ontario’s Bare Trusts arrangements, bringing to light new tax reporting rules that are vital for Canadians to understand. 

The term “Bare Trusts” might sound unfamiliar to some, but its essence is in separating legal and beneficial asset ownership. In simpler terms, it is when someone owns an asset, but it belongs to someone else in reality. This arrangement is not entirely new, but what is changed is the requirement to report these arrangements to the Canada Revenue Agency (CRA), starting with the 2023 tax year. 

One of the common scenarios where Bare Trusts can come into play is when parents co-sign mortgages for their children. This act of support and financial backing can have significant tax implications, especially now with the new reporting rules in place. It is important to be aware of any Bare Trust arrangements they are part of and ensure compliance with the new regulations to avoid potential penalties. 

The concept of Bare Trusts extends beyond co-signing mortgages to include various scenarios like joint bank accounts between family members, financial accounts for minors, and partnerships with elderly parents. These arrangements, while often innocent and practical, can trigger the need for tax reporting if they meet certain criteria set by the CRA. 

For instance, joint bank accounts or financial accounts created for minors may fall under the reporting requirements if they exceed a certain asset threshold. However, trusts holding less than $50,000 in assets may be exempt from these rules, offering some relief for smaller-scale arrangements. 

The complexity arises when dealing with co-signed mortgages, where the parent’s inclusion on the property title can create a Bare Trust arrangement. This is particularly relevant given the current economic climate, where young individuals face challenges in affording homeownership without family support. As such, more Canadians find themselves navigating these intricate financial landscapes, often unaware of the tax implications associated with their actions. 

In conclusion, co-signing loans and being part of Bare Trust arrangements are significant financial decisions that require careful consideration and understanding of the associated tax implications. With the implementation of new reporting rules, staying informed and compliant is key to maintaining financial stability and avoiding potential pitfalls in the future. 

These arrangements also have implications for your Will and Estate Planning as they can cause problems when one tries to mediate Estate Planning issues with family members along with your tax consequences. 
To learn more, reach out to Peter@smartwills.ca 
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This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.