Joint Bank Accounts = Bare Trusts ?! | Page 5 | Income tax filing | Discussion forum

I thought you wanted the in-trust account to be an actual trust!

CRA will do more than look at the in-trust account type. According to that Canadian Bar Association article, there's actually a tax liability on the capital gains and secondary income if an in-trust account legally fails to be a trust:

HOW ARE THEY TAXED?

Speaking of the CRA, let’s go over how these accounts are taxed.

Contributions made to an in-trust account are not tax-deductible. However, the contributor to the account can divide some of the taxable income with the beneficiary. Typically, all interest and dividend income is taxable in the hands of the contributor, and all capital gains are taxable in the hands of the beneficiary.

There are some exceptions:

First, if the contributor is also the trustee or if the account has been otherwise set up so that the assets can only be disposed of by direction of the contributor, then all of the income may be taxable in the contributor’s hands under section 75(2) the Income Tax (Canada) Act.

Second, if the funds in the in trust account are solely derived from Canada Child Tax Benefit payments – or an inheritance – all of the income is taxable in the hands of the child.

Lastly, secondary income (income earned on the income already generated by the original investment) is again taxable entirely in the hands of the child.

Once the child reaches the age of majority, all of the income is taxed in his or her hands. Note that the trustee is responsible for filing annual T3 trust returns to report income.

If, upon a review, the CRA decides that the account in question is actually not a trust, it may attribute all income to the contributor from the inception of the account, including capital gains. This could result in back taxes and penalties.

There are proposed changes to rules around bare trust in the news recently ... just watched a MoneyTalk video on TDDI

I understand in short, that the exemption limit increased to $250,000, as long as the trustees are related to the beneficiaries, starting tax year 2025.