Characterizing the relationship that dominates the Trust becomes of important importance in determining who is to be registered between the beneficial owner and the trustee for the purposes of Part IX of the Excise Duty Act (the “Act”) and who is therefore responsible for the GST on supplies related to assets held in trust. As such, a bare trust is primarily an agency relationship in which the simple trustee, as the beneficiary`s agent, owns property. There is an agency relationship in which the parties agree that one (the agent) acts in accordance with the instructions of the other (the client). Therefore, a simple trust arises when the parties agree that one (the simple trustee) is acting in accordance with the instructions of the other (the beneficiary) in respect of property (the trust property). The assets of the trust are, of course, the property in which the beneficiary enjoys beneficial ownership, but over which the simple trustee has a legal right. While the duties of the trustee in a simple trust relationship may generally indicate a predominant agency relationship, it is necessary to examine the nature of the obligations considered by the trust in order to determine whether the agency`s principles and not the principles of trust are applicable. However, a change in use may occur if the beneficial owner of the property held in a simple trust carries on tax-exempt activities and the simple trust carries on exclusively commercial activities. Any registered beneficial owner would then be responsible for collecting and transferring GST, filing tax returns, etc. to the extent that they own the trust. A cash trust is a trust where the trustee is only required to dispose of the assets of the trust in accordance with the instructions of the beneficiary. In other words, under a simple trust, the beneficiary retains full control over the trustee`s management of the trust`s assets.
In Universo Home Construction Ltd.c. The Queen, 2019 TCC87, the taxpayer claimed that he was the “builder” of a new home and was entitled to the transfer of a new apartment discount from the buyer of the new home. The Excise Tax Act (Canada) (the “Act”) allows the payment of a new home rebate to a builder if the builder has agreed to pay or credit the new home discount to the purchaser of the new home. The only question before the Court was whether the taxable person was a `trader`. In this case, the parties have agreed that the taxpayer is entitled to the refund. The title deed was registered in the name of the spouse of the taxpayer`s shareholder. The spouse and taxpayer submitted a fiduciary return. The Crown challenged the validity of the fiduciary declaration, stating that the taxpayer had no interest in the property to qualify it as a “builder” for the GST/HST rebate claim.
The Crown asserted that the fiduciary statement was unenforceable for several reasons: there were two versions of the trust that turned it into unreliable evidence; it was more likely to have been executed by the signatories after the date of purchase; and, in any event, the date of execution could not be determined on the basis of the document or other evidence. In general, the Crown has stated that there are not enough tangible legal actions or actions that establish a trust or other as a whole. The absence of this evidence could not prove that Universo Homes was a builder who was entitled to the discount transferred under the law. The court ruled in favour of the taxpayer and concluded that he was a “builder”, regardless of the questionable status of the fiduciary declaration. The Court concluded that it was the nebulous moment of execution that caused the confusion; it was not the declared effective date or the declared existence of certain certain certainties required for a trust. The court noted that there was significant evidence (other than the declaration of trust) consistent with the fact that the taxpayer was the beneficial owner of the property, even if it was not listed on the title. As mentioned above, the trustee of a simple trust has only one legal title and is transferred as such upon request in accordance with the specific instructions of the beneficial owner. The mere trustee would not be considered the owner of a business activity with respect to the assets of the trust and, therefore, the trust would not be required to register under the law. If you need to set up a simple trust, do it right. The Calgary, Alberta lawyers at Kahane Law Firm will be happy to explain and set up simple trust documents. We work with your accountant to ensure your tax planning advice is followed.
For an appointment, call 403-225-8810 or email us directly here. The following administrative definitions apply for the purposes of managing and interpreting bare trust policies. In the situation where the trust instrument provides for discretionary and decision-making liability as part of the trustee`s duties, the trust is not treated as a mere trust. As a person within the meaning of the Act, the Trust is responsible for the GST relating to the Trust`s business activities. The registration and termination provisions do not apply if the beneficial owner registers and the simple trust disconnects. There is no transfer of ownership through a sale or acquisition because there is no change in the legal or equitable ownership of the trust property, but only a change in who is considered commercial in relation to the property within the meaning of the law. The provisions of agency law in section 177 of the Act apply in situations where the agency relationship between the mere trustee and the beneficial owner is not disclosed to third parties. The main feature is the degree of control that the alleged client exercises over the alleged agent. In particular, the customer retains economic ownership of all real estate subject to this relationship in an agency relationship.
Thus, if an agency relationship requires the agent to acquire the client`s property, a simple trust may arise: if the agent acquires the client`s property with sole responsibility for carrying out the client`s instructions, the agent holds those assets as a mere trustee, while the client enjoys the rights associated with beneficial ownership – that is, the rights to use, possess, dispose of, generate income and destroy property. On the other hand, if the alleged agent does not have to accept the client`s instructions on the trade of the property, or if the alleged agent has significant independent power, discretion and responsibility over the property, he is neither an agent nor a mere trustee. The assets of the trust are held in the name of a trustee who is responsible for the prudent management of the trust`s assets in order to provide the greatest possible benefit to the beneficiaries, or as legally ordered by the beneficiaries or the creator of the trust. However, the trustee has no say in how or when the trust`s capital or income is distributed. Although a trust is generally not considered a unit, the law defines the term “person” as including a trust. A trust that arises when the settlor confers legal title on another person is therefore considered a person within the meaning of the GST. For GST purposes, if a transaction is made by the trustee as an undisclosed agent, the beneficial owner as principal is responsible for collecting and transferring tax on the accepted delivery to the agent, while the agent`s GST liability exists in respect of the accepted delivery to a third party. The only duty of a simple trustee would be to transfer legal ownership of the trust`s assets upon request and in accordance with the instructions of the beneficiary, as provided for in the trust deed. The trustee alone has no independent power, discretion or responsibility with respect to the assets of the trust.
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