Were You Added as a Joint Owner?
There have been two recent developments with Canada Revenue Agency (CRA) in the past couple of years and it may have an impact on more taxpayers than we (tax preparers) originally thought.
The intention of this article is to put you on notice that another tax return (or two) may be required if you are a joint asset holder: real property or bank accounts.
If this could be you, we recommend you find out what tax returns you may need to file in the next few months.
There is still much grey area as to whether these tax returns need to be filed in these circumstances and there has been much discussion in the tax preparation world in Canada. And CRA has not been clear enough as to who is affected.
So, in the meantime, be aware that you may be affected. We encourage our clients to at least identify themselves if they are in this situation so once we know if you are affected or not, we can provide the right information.
The two returns are a Trust Tax return and the new Underused Housing Tax return.
Added as joint owner for estate planning?
Have you been added to a bank account for estate planning reasons? Often a parent will add one or more of their adult children to their bank account(s). They may do this to help them with future banking as they become less able physically or mentally; or it could be to help with the estate administration after they die. There are pros and cons to adding adult children as joint owners, but that is another article and will not be discussed here.
When you are added as a joint owner for these reasons, you could be considered “holding the asset in trust” for the actual owner of the account.
CRA may consider this a “Bare Trust”, meaning you are a trust holder and not a beneficial holder.
Added as joint owner for financing?
Did you assist a family member or someone else with the purchase of a home? Is your name added to the title so they could get the financing? If so this could be considered a “bare trust”. A Bare Trust means an asset is in your name (or joint names), but you do not have a beneficial interest in the asset.
For example, a parent may co-sign a mortgage or other loan so their child can purchase the home or other asset. As the parent you have no intention of dictating how the home is managed or maintained and when the home is sold, you do not want to participate in the profit of the sale. You are merely on the title so the financing can be arranged. This may be considered a “bare trust”.
Trust Tax Returns
There are new requirements for Trust returns to be filed starting December 31 2023. The filing due date is end of March 2024. Prior to this year, the only Trust returns that needed to be filed were those that had income to report and pay taxes. If the Trust did not earn income, a tax return was not required.
But now any trust with a year end of December 31 2023 or later is now required to file a return even with no income to report. CRA wants to know about the trust and who are the beneficiaries.
The grey area is whether these “joint ownership” situations are really considered Bare Trusts since they are not legal, formal trust with trust documents drawn up. It seems CRA does not care if there is a formal trust document in place. They just want to know about it.
This Trust return requirement may also be for those that are joint account holders for estate planning purposes only. If you are an adult child and have been added as a joint account holder to your parent’s account, then you may be considered a Bare Trust: you are an owner, but not a beneficial owner. The money belongs to your parent and the intention is to assist your parent with the banking. And when they die, the intention is for the money to be part of the estate and distributed according to their Will.
Not filing the Trust return if you were required has hefty penalties.
Underused Housing Tax Return
The other issue for joint owners of real property is if you need to file the new UHT return. Since it is considered a Bare Trust, you may be an affected owner and may need to file the return.
Since the property is exempt, there is no tax to be paid, but the return may need to be filed. Not filing the return has hefty penalties.
The UHT for 2022 was originally due April 30 2023, and then extended to October 31 2023 and has been extended again to April 30 2024. Seems CRA knows there is lots of confusion around this new tax return.
File “just in case”?
For now, or at least until we get clarification from CRA, many of us tax preparers are considering filing the tax returns “just in case”. And if we find out later or CRA clarifies later that they are not required, then we can stop filing future returns.
As I mentioned at the beginning, the intention of this article is to put you on notice that another tax return may be required if you are a joint asset holder. Make sure you advise your tax preparer if you hold assets in joint names other than your spouse. You may be considered “a Bare Trust”.
Last minute tax planning
If you can, please make some charitable donations before the end of the year. Many organizations need the financial help as there are more in need this year and less people are able to give. If you normally pay taxes, you can save up to 46% tax when you file next Spring 2024.
Merry Christmas, Joyeux Noel, Frohe Weihnachten, Glaedelig Jul
your Ste Anne Tax Service team
Anni Markmann is a Personal Income Tax Professional and Certified Financial
Planner; living, working, and volunteering in our community. Contact Ste
Anne Tax Service at 204.422.6631 (phone or text!) or 36 Dawson Road in
Ste Anne (near Co-op) or email@example.com