Skip to content

Category: Internal Link

When is a Gift Taxable?

Posted on by david

Recently, the tax rules regarding non-cash gifts and awards given by employers have been updated. To understand the changes, let us take a look at the different types of ways employees maybe be rewarded by employers.

Gifts are given to an employee for a special occasion. Awards is given for a work-related accomplishment, beyond the scope of the employees job description like outstanding services. An award may be given for years of service or given in a manner that is not common, like a draw, nomination process, or an evaluation, and the award is not given to many recipients.

If the gift or award is cash or akin to cash it is taxed like income. If the gift or award is not cash and the fair market value of the item is below $500 it is not taxed. Once the combined total of the gifts and awards exceed $500 at fair market value, then tax will be applied.

There are a few exemptions:

  • If a gift or an award is given after an evaluation process and there are a limited number of recipients, the amount is not taxable.
  • If the gift award was given for years of service, then the fair market value does not get linked with other gifts. However, the years of service must be for five or more years, and the recipient may not have received another award for years of service within the previous five years with the same employer. This is a new update.
  • Trivial items like a cup of coffee, a mug, or t-shirt are not included in combined total of non-cash gifts.

Included in the recent update are specific guidelines about gift cards, along with gift certificates and chip cards. They are considered “non-cash” if the card comes with money on it, it may only be used from a single retailer or a set group of retailers, and their terms and conditions of the card clearly state the amount loaded on the card may not be converted into cash.

For more details, visit the CRA’s website.

First Home Savings Account

Posted on by david

Beginning in 2023, Canadians planning to buy their first home may open a First Home Savings Account (FHSA). This is a registered savings plan for any Canadian, over the age of 18, who has not previously owned a home that they have resided in for the past four years.

The FHSA begins when you first open an account; it does not begin automatically. It is therefore important that you open your FHSA immediately if you plan on purchasing a home in the short-term, even if you don’t have funds to contribute in the first year. And when you do open a FHSA, you must file your income tax return for that year. Accounts may be opened through a FHSA issuer, such as a bank, credit union, or a trust or insurance company.

You may carry forward up to $8,000 of your unused annual contribution amount to use in a later year (subject to the $40,000 lifetime contribution limit). For example, if you open an FHSA in 2023 and contribute $5,000, you can contribute up to $11,000 in 2024. Carry-forward amounts do not start accumulating until after you open an FHSA.

Don’t have $8,000?  No problem. You can transfer amounts from your RRSPs to your FHSAs without any immediate tax consequences, as long as it is a direct transfer. These transfers are subject to FHSA annual and lifetime contribution limits and are not deductible from income.  Transfers from an RRSP to an FHSA do not restore your RRSP contribution room.

First Home Savings Accounts can be used to invest in Stocks, ETFs, options and much more just like a TFSA or RRSP. In essence, the FHSA is similar to TFSA and RRSPs, but specifically for people looking to buy their first home. You can also continue to contribute until you’ve reached the lifetime limit, or 15 years after the account’s initial opening.

The FHSA is different from an RRSP Home Buyers’ Plan which allows you to withdraw up to $35,000 from your RRSP to help you buy your first home. The money must be repaid to your RRSP within 15 years, otherwise it is included in income. For details visit our Home Buyers’ Plan page.

To be eligible, you must not have owned real property including a condominium or house solely or jointly with a spouse or common-law partner within the last four years. Your spouse or common-law partner also may not own your current primary residence.

For more details on the FHSA, call us at 905-898-4900, or check out CRA’s page

Trust Reporting Requirements

Posted on by david

UPDATE: March 28, 2024

The Canada Revenue Agency has announced on March 28, 2024 that bare trusts would not require a T3 Income Tax and Information Return (T3 Return) for the 2023 tax year, unless directly requested by the CRA. Further clarification will be forthcoming from the CRA regarding the future reporting requirements for bare trusts.

Navigating the New Trust Reporting Rules in Canada with In-depth Insights on Bare Trusts

The Canadian government’s new trust reporting rules, effective from the 2023 tax year onward, aim to enhance transparency and ensure accurate reporting of income generated within trusts. These changes apply to various trust structures, including family trusts, testamentary trusts, alter ego trusts, and notably, bare trusts. T3 Returns and disclosure forms for taxation years ending on or after December 31, 2023, must be filed by April 2, 2024.

Key Highlights:

Enhanced Disclosure Requirements: All trusts, including bare trusts, must adhere to more detailed reporting. This includes identifying trustees, beneficiaries, and settlors, including names, addresses, and Social Insurance Numbers. Specific transactions and events, such as distributions and contributions, must also be reported. Under these rules, beneficiaries include persons who currently have a right to income or capital as well as those having residual or contingent interests. As a result, some beneficiaries might not know that they have an interest in the trust, which could cause issues when collecting information from them.

A trust would be considered to have met the reporting requirements if it provides this information for each trust beneficiary whose identity is known or ascertainable, with reasonable effort at the time of filing. For beneficiaries whose identities are not known or ascertainable, a trust can comply by supplying sufficiently detailed information on the T3 return to determine with certainty whether any particular person is a beneficiary.

Penalties: The updated reporting rules also introduce a new penalty for non-compliance: either $2,500 or 5% of the property’s value, whichever is greater. This is in addition to the existing penalties for the failure to file a trust return. In guidance issued on December 1, the CRA announced that no penalties would be imposed for submitting a trust return and a Schedule 15 for bare trusts after the 2023 tax year deadline. It’s important to note that the filing requirement remains in place, and penalties may be applied for knowingly or grossly negligent failures to file, according to the CRA. Recognizing that the 2023 tax year marks the first instance where bare trusts must file a T3 return with the new Schedule 15, the CRA is taking an education-first approach to compliance and offering proactive relief to address potential uncertainties among bare trusts about these new requirements.

Common Exceptions:

  • Trusts which have been in existence for less than three months at the end of the year;
  • Trusts which hold less than $50,000 in assets throughout the taxation year (provided their holdings are confined to cash, certain debt obligations, and listed securities)
  • Estates that qualify as graduated rate estates during the initial 36 months after the individual’s death
  • Trusts that qualify as non-profit organizations or registered charities

Insights on Bare Trusts – Real-Life Examples: Bare trusts are a simple concept; it is where one person’s name is shown as the owner of an asset, but the asset truly belongs to someone else. The trustee is merely vested with legal title and has no independent duties or powers concerning the trust property. The trustee’s sole responsibility is to deal with the property as the beneficiary directs. The beneficiary retains the full beneficial ownership of the property in question, and, as a result, the income and gains realized on the trust property are taxed in the beneficiary’s hands.

Adding Children on Title to a Family Home or Cottage:
Scenario: Parents put property in their children’s names for estate planning purposes, or to minimize probate tax, with the parents retaining beneficial interest.

This joint ownership typically results in the creation of a bare trust, where the adult child becomes the trustee, holding legal title but with limited authority. The parent, as the settlor and sole beneficiary, retains control over decisions related to the property. The adult child acts solely on the parent’s instructions and cannot take any action without their direction.

For instance, if the parent decides to sell the family home, the adult child’s role is to convey legal title based on the parent’s instructions. The proceeds from such a sale entirely benefit the parent.

Reporting Obligation: The bare trust, in this case, involves children holding legal title while the parents are the settlors and the beneficiaries. The children must report the details of the property and the beneficial interest held by the parents.

Parents Holding Partial Title on Children’s Property:
Scenario: Parents and children jointly own a property, with each party having a distinct share in the property.

In the current competitive real estate market, it’s not uncommon for parents to agree to be included on the deed and mortgage for their adult child’s home. This helps facilitate the child’s eligibility for a mortgage even though the parents haven’t financially contributed to the purchase and won’t have any active responsibilities concerning the property. In this case, it is likely a bare trust has
been created.
Reporting Obligation: In this scenario, each party’s ownership interest must be disclosed. The trustees, in this case, are both the parents and the children and the reporting should outline the specifics of each party’s share.

Joint Bank Accounts:
Scenario: A parent includes their child as a joint owner of a bank account, allowing the child to assist with tasks like bill payments and other banking matters on behalf of the parent. Both individuals acknowledge that the funds in the account are intended exclusively for the parent’s benefit.

Reporting Obligation: The trust reporting requirements may extend to joint bank accounts where one party holds legal title, and the other party is a beneficiary. The details of the account, including transactions and beneficial interests, must be accurately reported.

In-Trust-For Accounts:
Scenario: A parent deposits money into an “in-trust” account for the benefit of a minor family member. In this arrangement, the minor, designated as the beneficiary, has the right to close the account and access all funds once they reach the age of 18.

Reporting Obligation: The trust reporting requirements may extend to informal “in-trust-for” accounts where one party holds legal title, and the other party is a beneficiary. The details of the account, including transactions and beneficial interests, must be accurately reported.

Conclusion
Staying informed about the new trust reporting rules, especially concerning bare trusts, is critical for trustees. It is crucial to note that bare trusts will now be required to file a T3 tax return, adhering to the enhanced disclosure requirements outlined by the Canadian government. Our team is here to support you in adapting to these changes and ensuring a seamless transition. If you have any questions or require further clarification on how these changes may impact your specific bare trust situation, please do not hesitate to reach out to us. We are committed to assisting you in navigating the evolving landscape of
tax regulations.

Client Login

Forgot your password?

Remember this computer