Bare trusts have traditionally been used as part of overall tax planning and to meet various other business objectives. In fact, they are often used to help reduce the overall tax burden that occurs on the transfer of ownership of real property. However, the usefulness and benefit of bare trusts in real estate transactions has recently been called into question.
Carole James stated in the Finance News Release of July 25, 2018 (News Release), “Our government has been clear that the days of skirting tax laws and hiding property ownership behind numbered companies and trusts are over.”
Effective September 17, 2018, the new property transfer tax return that must be prepared for all property transfers will require people to report additional information when a transaction is structured through a corporation or trust. According to the government, the intent of the change is to identify people with a significant interest in the property.
The additional information that will be required for all parties includes
- date of birth;
- citizenship information;
- contact details; and
- tax identification numbers.
The reporting requirement applies to all types of property, including commercial and residential.
This change follows from the announced amendments in the February 20, 2018 provincial budget, which included
- an increase in the property tax assessment limitation period to six years;
- changes coming to the property transfer tax information specifically mentioning individuals using bare trusts;
- the introduction of an administrative penalty for non-compliance; and
- a general anti-avoidance rule added to the entire Act.
In addition, the July News Release stated that the property transfer tax auditors’ powers have been increased to permit them to take action on tax evasion. So, in addition to all the other changes, there appears to be an increased audit focus and scrutiny for property transfer tax.
Which all begs the question: is the day of bare trust ownership for tax planning over? Anyone contemplating the use or continued use of a bare trust definitely must now consider the potential risk, especially if the main purpose of the bare trust ownership structure was to help minimize or, in some cases, defer the payment of property transfer tax on the change of title in the land registry.