Case: HQR0000800
File: 117501
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Subject:
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Bare Trust Issue
XXXXX
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Dear Mr. XXXXX
This is in response to the facsimile letter (and further telephone conversations) from XXXXX of your office, concerning the above-referenced matter.
Our understanding of the facts is as follows:
1. XXXXX (the Community Centre) was incorporated on June 7, 1994. The Community Centre became a Registered Charity for the purposes of the Income Tax Act effective XXXXX[.] The Community Centre has not registered for the GST.
2. XXXXX (the Cultural Society) purchased land on XXXXX in Trust. A sworn affidavit from one of the directors of the Community Centre states that the Cultural Society was to hold title to the land in trust for the Community Centre. The Cultural Society registered for the GST on XXXXX[.]
3. XXXXX to the present, a building was constructed on the land purchased in trust. Some of the invoices were made out to the Cultural Society while other invoices were made out to the Community Centre.
4. The Cultural Society has filed two annual credit returns for the periods ending XXXXX[.]
The following issues were considered by your office:
(1) Which of the two bodies (if either), is entitled to an input tax credit or a rebate?
(2) How is the amount of the refund to be determined? Should this be by invoice amount or by fair market value? Should the refund be given by rebate or other means?
Our Comments
Based on the information provided, our comments are as follows:
Whether or not a trust is a bare trust in a particular situation is a question of fact. If the trust is a bare trust, it holds only the legal title to the property and generally the only function of the bare trustee is to transfer the legal title upon the instructions of the beneficiaries.
Policy 15, Treatment of Bare Trusts under the Excise Tax Act states that "The existence of a trust is generally evidenced in a trust document which sets out the terms of the trust and specifies the obligations and responsibilities of the trustee." In this case there is no formal trust document but there is a sworn affidavit (from a person who was both President of the Cultural Society and Treasurer of the Community Centre) outlining the roles and responsibilities of the Cultural Society and stating that a bare trust existed.
This affidavit specifically states that the Cultural Society was a bare trustee for the Community Centre. If the affidavit is accepted as fact, Policy 15 would be applicable to determine the GST treatment of transactions involving the bare trust.
The affidavit further states that the sole duty of the Cultural Society as a bare trustee was to convey legal title to the trust property on demand of and according to the instructions of the beneficiary, the Community Centre. The Cultural Society did not have any independent power, discretion or responsibility pertaining to the trust property. The Community Centre retained the right to control and direct the trustee in all matters relating to the trust property.
Therefore, the beneficial owner, rather than the bare trust, would be involved in any commercial activities relating to the trust property and would be the appropriate person to register, if required, or if voluntary registration were desired. In this case, the Community Centre would be the appropriate body to register, and would be the person eligible to claim any input tax credits (ITCs), provided that all of the legislative requirements relating to ITCs, in particular section 169, are met.
With regard to the issue of whether the Community Centre would be eligible for a 50% rebate as a charity and/or non-profit organization, in all cases the legislative requirements of section 259 must be met by the person claiming the rebate. Accordingly, our analysis is as follows:
Effective January 1, 1996, the Community Centre became a Registered Charity for purposes of the Income Tax Act. Therefore, beginning January 1, 1996 it would be eligible for a 50% public service body rebate for charities for non-creditable tax charged (subject to restrictions set out in the PSB Rebate Regulations). For the period June 7, 1994 to December 31, 1995, the Community Centre appears to have been a non-profit organization. As you are aware, a non-profit organization is eligible for a public service body rebate only if its percentage of government funding for a given year is at least 40%.
With respect to the questions under (2) above, as discussed by telephone, it is our view that these are primarily audit/operational issues for determination by the TSO. Accordingly, we have no comment on these matters.
Should you have any questions or require clarification of the above, please contact the undersigned at (613) 952-1512.
Yours truly,
Mark Seigel
Policy Officer
Financial Institutions and Real Property
GST/HST Rulings and Interpretations
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