A Practical Guide To Bare Trust Reporting

Key Concepts

What is a Bare Trust?

In simple terms, a bare trust can arise when one person holds legal title to property for someone else who is the beneficial owner and who enjoys the benefits, bears the risks and controls what happens to the property. Accordingly, the primary difference between a bare trust and an ordinary trust arrangement is that the beneficial owner of the property retains control over that property and the person who has legal title is acting only as an “agent” for that beneficial owner and has no responsibility, discretion or control with respect to the property. This differs from an ordinary trust arrangement where the trustee has both legal title and control over the property held for the benefit of the beneficiary, who does not have any control over the property.

Accordingly, where the legal owner of a property is not also the beneficial owner of the property, and that legal owner has no control over that property, a bare trust arrangement likely exists.

Common Bare Trust Scenarios

There are many scenarios where a bare trust arrangement may exist for either personal or business reasons. It is also important to note that a bare trust can arise informally and without any written agreement.

Some common examples of bare trust arrangements could include (but are not limited to) the following:

Personal bare trust arrangements:

• Addition of an adult child on title to bank accounts, non-registered investment accounts, or real estate to assist aging parents or for estate planning/probate purposes;
• Parent(s) on legal title of real estate (with or without child) for financing purposes only;
• Only one spouse on title for a house and the other spouse is a partial beneficial owner; and
• “In trust for” bank accounts (i.e., bank accounts opened by a parent/grandparent for minor children/grandchildren).

Business bare trust arrangements:

• Use of a nominee corporation to legally own property for real estate development purposes (i.e., joint venture arrangement);
• Assets that are legally registered to one corporation, but beneficially owned by another related corporation;
• Corporation legally on title for an individual’s asset (i.e., real estate, vehicle) or vice-versa;
• One member of a partnership having legal title to an asset held for the benefit of all members of the partnership (i.e., bank account, real estate);
• Shareholder legal title over a corporate bank account, where the corporation is the beneficial owner of the funds; and
• Specific or general trust accounts held by a law firm for clients.

Determination of a Reportable Bare Trust

The current Federal legislation requires that most trusts, including certain bare trusts, must file an annual T3 Trust Income Tax and Information Return, including Schedule 15 to identify trustees, settlors and beneficiaries.

However, the fact that a bare trust arrangement exists does not automatically result in a T3 reporting requirement. The current bare trust legislation provides that some scenarios are specifically exempted from the definition of a bare trust (or “deemed trust” as defined in the Income Tax Act) to prevent a number of “ordinary” arrangements from being swept into these new reporting requirements.

In addition, even where a bare trust arrangement is not specifically exempted from the definition of a “deemed trust”, additional exemptions may apply to provide relief from the filing requirement.

Exemptions from Bare Trust Classification

The following are examples of some scenarios (not an exhaustive list) that would generally be exempted from the classification as a reportable bare trust (i.e., “deemed trust”) and accordingly would not have a T3 filing requirement:

Type of Scenario	Description	Example
Joint or co-ownership	Each beneficiary is a legal owner, and all legal owners are beneficiaries	Joint bank account Note: Does not exclude situation of adult child named on bank account for an aging parent unless adult child is also a beneficial owner
Family-owned principal residence	Legal owners of real estate are all related individuals, and real estate could be designated as the principal residence of one or more legal owners	Parent added on legal title to a child’s home to assist with financing
Spousal use of principal residence	Legal owner of real estate is an individual and real estate is held for the benefit of the legal owner’s spouse and could be designated as the legal owner’s principal residence for the year	One spouse is on legal title for the family home that is jointly occupied
Partnership property	Legal owner of the property is a partner of a partnership, property is held solely for the benefit of the partnership, and a partnership information return (T5013) would be required for the partnership (even if requirement waived by CRA)	Corporate general partner has legal title to real estate under development by the partnership

Additional Exemptions Available

As previously mentioned, a bare trust arrangement that is not specifically excluded from the definition of a “deemed trust” may still be exempted from filing in certain circumstances (i.e., de minimus asset tests). The following is a list of some of the more common situations for a bare trust arrangement which may provide an exemption from the T3 filing requirement as a “deemed trust”:

• The trust arrangement was in existence for less than three months;
• The total fair market value of all property held by the trust does not exceed $50,000 at any time during the year;
• The trust holds only certain qualifying assets (generally cash, GICs, most publicly traded securities, personal use property and certain exempt life insurance policies), which in aggregate had a fair market value that did not exceed $250,000 at any time during the year AND each beneficiary is an individual (other than a trust) who is related to each individual trustee; and
• Regulatory trusts (i.e., lawyer trust accounts) required under rules of professional conduct or legislation to hold funds for the purposes of the activity that is regulated by those rules or laws provided that:
  • The trust is not maintained as a separate trust for specific clients; OR
  • The only assets held in the trust are cash deposits and GICs, the total of which does not exceed $250,000 at any point in the year.

Note that the determination of whether a bare trust arrangement is either exempted from the definition of a “deemed trust” or whether any other filing exception applies requires an annual review of the facts and value of property held throughout the year. Accordingly, it could be possible for a bare trust arrangement to be exempt from filing in one year and reportable in the next.

Tax Compliance Reporting Requirements

If it has been determined that a reportable bare trust (or “deemed trust”) exists and no other exemption applies, a T3 Trust Income Tax and Information Return must be filed.  Note that a bare trust would not report any income on its T3 Return since the beneficial owner of the property is required to report any income earned or taxable capital gain realized on that property on their own tax return. Accordingly, the T3 Return for a bare trust will only be an information return with no taxes owing.

The T3 return will have to include Schedule 15 – Beneficial Ownership Information of a Trust. Schedule 15 asks for details with respect to each and every settlor (i.e. person who established the trust or subsequently contributed property to the trust), trustee, beneficiary, or any person that can exert influence over trustee decisions (collectively referred to as “reportable entities”). Accordingly, the following will need to be disclosed for each “reportable entity”:

• Name;
• Address;
• Date of birth (individuals);
• Jurisdiction of residence; and
• Taxpayer identification number (i.e.: Social Insurance Number, Business Number).

The T3 return (including Schedule 15) is due within 90 days after the taxation year, which will be the calendar year for a bare trust. Accordingly, a 2026 bare trust T3 return will have a filing deadline of March 31, 2027.

Non-Compliance Penalties

• Failure to file a required T3 return (including Schedule 15) will result in a late-filing penalty of $25 per day, with a minimum of $100 and a maximum of $2,500.
• In addition, where the failure to file is made knowingly or through gross negligence, the penalty is the greater of $2,500 and 5% of the fair market value of the property held by the trust.

Conclusion and Recommendations

As the new bare trust reporting legislation will result in many more T3 return filing requirements, it is important for individuals and businesses to begin to review asset ownership arrangements as soon as possible. Some recommendations for first steps in the process include:

• Review of all real estate titles, bank/investment accounts, partnership arrangements and nominee to determine any differences between legal and beneficial ownership. Specifically, one should query whether the person/corporation whose name appears as the legal owner for an asset is actually the person/corporation entitled to the economic benefit of the asset.  If the answer to this is no, further investigation is required;
• Consider and document whether one of the limited exceptions from the definition of a bare trust (“deemed trust”) is applicable;
• Determine the fair market value and type of property that could be considered held by a non-exempt bare trust throughout the 2026 calendar year to confirm if a separate exemption from filing could exist based on an asset de minimus rule; and
• Identify all settlors, trustees and beneficiaries for any reportable bare trust arrangements and obtain required details including full legal name, address, date of birth and tax identification numbers (Social Insurance Number, Business Number, trust number).

For further guidance on the impact of these new bare trust reporting and disclosure requirements on your current situation, please contact your Welch LLP advisor.