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Taxation law


Mar 4th, 2024

By Daniel Frajman

A new CRA Interpretation appears to shield standard Quebec prête-nom agreements from the obligation to file trust tax returns.

The new trust reporting legislation under the federal Income Tax Act (ITA) applies for tax years ending after December 30, 2023, to non-exempt express trusts (in Quebec, non-exempt trusts formed otherwise than by law or judgment), and the first trust tax returns that apply the new reporting rules will be due by April 2, 2024.   (In essence, the new rules require a schedule to the trust tax return that sets out for each of the trust’s reasonably ascertainable settlors, trustees, beneficiaries and persons such as protectors with an ability to influence trustee decisions as to payment of income or capital, the name, address, date of birth, jurisdiction of residence and taxpayer identification number of such persons).

In the common law provinces, bare trusts are getting ready to file trust tax returns for the first time, as they had been exempt from filing under the pre-2023 rules, but now the new reporting rules state that they must file, and that the filing will include the just mentioned additional reporting required now of trusts.

The Quebec prête-nom (nominee) agreement

Does such required filing by bare trusts also apply to nominee agreements (prête-nom agreements) in Quebec?

An answer to this question has apparently come from a Canada Revenue Agency technical interpretation dated February 27, 2024 (CRA technical interpretation 2024-1006681E5 and 2024-1006721E5F), in which the question addressed was whether a trust return must be filed by a person acting as agent for one or more other persons with respect to all dealings with certain property, but without the arrangement being a trust.  The CRA indicates in the Interpretation that a trust is needed at private law (or the arrangement must otherwise be deemed to be a trust for the purposes of the ITA) in order for a trust return to be required under s. 150 ITA and following.

It should be noted that the interpretation does not refer specifically to a “prête-nom” or nominee agreement, but rather an arrangement whereby one acts as agent (mandatary). However, the arrangement described does seem to correspond to a standard nominee agreement used for example for assets in Quebec.

This appears to be good news to parties to Quebec prête-nom agreements, which are often used in Quebec rather than bare trusts when setting up agents (mandataries) acting for beneficial rights-holders in a variety of circumstances including commercial real estate developments.  This apparent good news stems from established precedent in Quebec to the effect that a prête-nom agreement is a contract of mandate under the Civil Code of Quebec, and not a bare trust or other trust (see Victuni v. Minister of Revenue of Quebec, [1980] 1 SCR 580).  This CRA technical interpretation therefore suggests that in general a typical Quebec prête-nom agreement as described above would not be a trust and therefore would not be subject to the new trust reporting legislation under the ITA.

It is important that any particular contract or other arrangement be individually assessed by us to evaluate whether or not it establishes a trust.  Therefore, please do be in touch with us if you have any questions on this matter, or to obtain details beyond this brief summary.