Lawyers’ trust accounts are bare trusts
Two CBA sections weigh in on why legal professionals’ trust accounts are exempt from new trust reporting rules
In a nutshell
The CBA’s Wills and Trusts and Taxation Law Sections have shared their view with the Canada Revenue Agency (CRA) that trust accounts maintained by legal professionals qualify as bare trusts for income tax purposes. As such, they should be exempt from the trust reporting requirements for the 2023 and 2024 tax years.
Why legal trust accounts qualify as bare trusts
The CBA Sections cite the current subsection 150(1.3) of the Income Tax Act, which provides that “a trust includes an arrangement under which a trust can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property.”
The proposed amendments to this provision do not change the conclusion. They state that a trust includes “any arrangement under which one or more persons have legal ownership of property held for the use of, or benefit of, one or more other persons or partnerships, and the legal owner can reasonably be considered to act as agent for such persons or partnerships.”
Although the ITA does not define “bare trust,” the Sections add that the position is consistent with case law, including Robinson v. R and De Mond v. R., in which courts defined a bare trust as a trust where “the trustee is acting no differently than an agent of the beneficiary.”
Why this matters for lawyers
Given that lawyers’ trust accounts are “arrangements under which the legal professional can reasonably be considered to act as agent for its clients,” barring exceptions that may cover unconventional arrangements between a legal professional and their client that’s different from the bare-trust characteristics, all lawyers’ trust accounts should be considered bare trust and exempt from trust reporting requirements.
Read the submission.
