Bare trusts are getting one last reporting reprieve.
The Canada Revenue Agency’s recent announcement that it did not expect bare trusts to comply with its general trust reporting requirements for the 2025 tax year has become something of an annual ritual for beneficiaries. But this year’s statement suggests they shouldn’t get used to it, as it may be their final exemption.
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.
Back in 2024, few estates and trust law practitioners were surprised when bare trusts were exempted from the federal government’s new reporting rules, which require trusts to file a T3 tax return identifying the trustees, beneficiaries and settlors of the trust – even if the reprieve arrived in chaotic fashion, just days before the filing deadline for the 2023 tax year.
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.
However, the CRA indicated it will be ready to enforce the rules on bare trusts for the 2026 tax year, once Bill C-15 – currently before Parliament – is passed. If enacted, the proposed legislation will formalize permanent exemptions for small bare trusts with less than $50,000 in assets, as well as certain other specified situations
Trustees of all other 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.
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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