The era of the reportable bare trust has begun.
After a series of false starts, the Canada Revenue Agency has confirmed that bare trusts with a 2026 year-end will finally be subject to its general trust reporting rules, which require trusts to file a T3 tax return identifying the trustees, beneficiaries and settlors of the trust – subject to certain exceptions.
Bare trusts allow beneficial owners to retain ownership and control over a property while someone else holds the legal title and are frequently used by testators who want to minimize the probate tax payable on the transfer of a home or cottage to a beneficiary, without the hassles and risks that come with holding property jointly with that person during their lifetime.
According to the CRA guidance, there is some good news for taxpayers, since many of the most common bare trust arrangements will fall short of the requirements for reporting. The key exemptions formalized in a recently passed budget implementation bill are for:
- Small bare trusts with less than $50,000 in assets
- Bare trusts with less than $250,000 in assets, as long as the only property in them throughout the year is money or GICs
- Bare trusts where all the beneficiaries are also the legal owners of the property in the trust, as might be found in a joint bank account.
- Bare trusts where the legal owners are related and the only property could be considered at least one owner’s principal residence.
- Bare trusts where the legal owner’s principal residence is held in for the benefit of their spouse, which is designed to cover situations where spouses live together, but only one of them is on title.
Historically, most trusts were able to avoid annual tax filing requirements, because T3s were only needed when trusts owed tax or made distributions to beneficiaries and simple bare trusts did not seem to be the intended targets of the reporting rules, which were supposed to be part of a crackdown on money laundering, terrorist financing and tax avoidance.
Back in 2024, the federal government hastily exempted all bare trusts from its new reporting rules just days before the filing deadline for the 2023 tax year, following an outcry from estates and trust law practitioners.
Trustees of reportable bare trusts will have good reason to take their reporting obligations seriously. Penalties for non-compliance accumulate at a rate of $25 per day up to a maximum of $2,500. The fines jump significantly when false statements in the document or the failure to file were done knowingly or as a result of gross negligence: then the penalty is calculated as the greater of $2,500 or 5% of all assets in the trust.
The obligations these new rules impose on trusts are relatively onerous – especially compared with the status quo – and some people may prefer to wind up their existing trust arrangements if privacy was a key feature for them, or if they will struggle to get all the necessary information together in time to comply.
The silver lining for those with reportable bare trusts is that they will have plenty of time to get their affairs in order, since the filing deadline for trusts with 2026 year-ends isn’t until March 31, 2027. The CRA has also promised more information in advance of the T3 return filing season early next year.
Whether you already have trusts in place as part of your existing estate plan or you’re thinking of setting them up, an experienced estates lawyer can help you assess your options and meet your reporting obligations.
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