What is a bare trust in Canada?

Definition of Bare Trust

A bare trust is a legal structure that divides the legal ownership of an asset and the beneficial ownership (or the ownership that benefits from holding the asset).

 

Why is this term important?

The use of a bare trust in Canada helps divide the beneficial and legal ownership of an asset, in particular, a property or real estate asset.

By dividing the ownership, decisions can be made about the asset, without the interaction or need for the beneficial owner to participate in the day-to-day business of the planning and management of that asset.

The real benefit of using a bare trust in Canada is that it allows for the transfer of an asset without alteration or change to the legal title of the property. This eliminates a need to register a title change at the Land Registry Office and, in some provinces like B.C., helps avoid having to pay Provincial Property Taxes (PTT), otherwise known as Land Transfer Taxes (LTT).

Typically a bare trust is the use of a company to hold the legal or registered title to the property as the nominee, in trust for the “real” or beneficial owner of the property.

Note: As of 2018, the Federal Liberal Government and the B.C. NDP Government proposed amendments that would require all legal information regarding bare trusts must be recorded and submitted on an annual basis. This appears to take effect for the tax year 2018 in B.C. and will not start until the tax-year 2021 for federal reporting.

In Ontario, transfer of ownership within a bare trust is not exempt from having to pay Land Transfer Tax (LTT).

Examples of term

A foreign buyer will set up a bare trust that purchases a condo in Vancouver's Coal Harbour neighbourhood. After a year, that buyer wants to capture the appreciation and equity, so they sell the ownership of the bare trust to another foreign buyer. Because the ownership of the condo has not changed, no change at the Land Registry Office is required and no PTT is owed.