Bare Trusts and Co-signing for a Mortgage

So, let's talk about the new CRA T3 filing requirements for people who have co-signed on a mortgage. You might be wondering why this is even a thing, and what it means for you. Well, don't worry, because I'm here to break it down for you. First things first, let's quickly go over what a co-signer is. When you co-sign a mortgage, it means that you are essentially taking on the responsibility of the loan along with the primary borrower. This can happen when someone, like a family member or a close friend, doesn't meet the lender's criteria on their own. So, as a co-signer, you're on the hook for the mortgage if the primary borrower defaults on the loan. Second, a Bare Trust is a situation where you legally or are named as a legal owner of an asset or property, but the asset is held for the benefit of someone else. Having co-signed for someone else’s mortgage so they can qualify and get into the housing market is an example of a Bare Trust. Usually when co-signing for a mortgage, you will be added to title for as little as 1 percent of ownership; therefore, you are a named legal owner of the property. Now, let's get into the nitty-gritty of the new CRA T3 filing requirements. The Canada Revenue Agency (CRA) has recently implemented changes to ensure that all income from joint investments, including co-signed mortgages, are properly reported. In the past, co-signers did not have any reporting obligations when it came to these investments. However, with the new requirements, co-signers are now required to report any income earned from the co-signed mortgage on their T3 tax form. So, what does this mean for you as a co-signer? Well, it means that you need to pay close attention to the income earned from the co-signed mortgage. This includes any interest, dividends, or other types of income that may be generated. You will need to gather all the necessary information related to this income and report it on your T3 tax form. It should also be noted that even if there is no income generated by the property, you will still need to file a Schedule 15 (Beneficial Ownership Information of a Trust) which forms part of a T3 tax form; therefore, a co-signer of any property will now need to have a T3 filed. Now, you might be thinking, "How do I even know what income is earned from the co-signed mortgage?" The first step is to communicate with the primary borrower and the financial institution where the mortgage is held. They should be able to provide you with the necessary information, such as annual statements and tax documents. Once you have all the required information, you will need to complete the T3 tax form. This form is specifically designed for reporting income earned from joint investments, including co-signed mortgages. It will ask for details such as the type of income, the amount earned, and any taxes withheld. Make sure to fill out the form accurately and double-check all the information before submitting it to the CRA. The T3 tax form can be a bit complicated for someone that has never completed one and even though the CRA provides detailed instructions and guides on their website, it is highly recommended to seek the advice of a tax professional who can guide you through the requirements and ensure that everything is filed correctly. The deadline for the filing of the T3 is April 2nd; which is well ahead of the April 30th tax return filing deadline. There may be significant penalties levied for late or unfiled T3 tax forms. The CRA may waive penalties for the 2023 tax year; however, if it is shown that the T3 was not filed knowingly or due to gross negligence an even more severe penalty will apply. It's important to note that these new filing requirements are not limited to just the current tax year. Co-signers are required to report income from co-signed mortgages for each tax year moving forward. So, it's crucial to stay on top of your reporting obligations every year. To avoid these complications, it's essential to understand and fulfill your obligations as a co-signer. Take the time to educate yourself on the new filing requirements, gather all the necessary information, and ensure that you accurately report the income earned from the co-signed mortgage on your T3 tax form. In summary, the new CRA T3 filing requirements now require co-signers on mortgages to file a T3 tax form and report any income earned or generated by the property; even if there was no income earned whatsoever. This means that as a co-signer, you must gather all the relevant information, accurately complete the T3 tax form, and submit it to the CRA. Failure to comply with these requirements can lead to penalties and potential audits. So, make sure to stay informed and fulfill your reporting obligations to avoid any unwanted complications.