Bare trust tax reporting obligations were initially announced for 2023 before being deferred to 2026 taxation years. Bare trusts must once again be reviewed to determine if there is a tax return filing obligation for 2026.
What is a “bare trust”?
In general terms, a bare trust exists if one or more persons have legal ownership of property, the property is held for the use or benefit of one or more other persons, and the legal owner(s) can reasonably be considered to be acting as agent for those other persons.
Unless a bare trust meets one of the exemptions outlined below, a bare trust must file the following on or before March 31, 2027:
- T3 Trust Income Tax and Information Return. Due to the nature of bare trusts, the information requested on the standard T3 return about taxable income and capital gains and losses is not relevant and may be left blank. The taxable income, capital gains and losses from the bare trust property should be reported directly on the beneficial owner’s tax return.
- Schedule 15 Beneficial Ownership Information of a Trust. This schedule reports detailed information about the settlor, trustees and beneficiaries of the bare trust; including the person’s name, taxpayer identification number, date of birth, address, and country of residence. Schedule 15 is subject to a late filing penalty of $25 per day up to $2,500. A higher penalty may apply where a person knowingly or with gross negligence makes a false statement or omission, or fails to file schedule 15. The penalty is the greater of $2,500 and 5% of the highest fair market value of all property held by the trust at any time during the year.
Bare trust filing exemptions
There are several bare trust filing exemptions. The following describes some of the more commonly applicable exceptions for a bare trust arrangement involving related persons. For purposes of these rules, related persons include lineal family members connected by blood or marriage plus aunts, uncles, nieces and nephews.
(a) Joint accounts with related persons
Joint accounts that are considered to be bare trusts are exempt if all legal owners are beneficiaries and all beneficiaries are legal owners. There is no fair market value threshold and no restriction on the type of property in the bare trust.
Example: Two spouses combine their investments into a single joint account registered in the names of both spouses. This bare trust is exempt because both spouses are legal owners of the account assets and both have beneficial use of the property.
(b) Individual on title of a related individual’s principal residence
This exception applies if all legal owners are related individuals, and the property qualifies as the principal residence of one or more legal owners. There is no fair market value threshold.
Example: An adult child and his or her parent are on title as legal owners of the child’s principal residence. The parent has no beneficial interest in the home and was added on title solely for purposes of co-signing a mortgage taken out by the child to acquire the home.
(c) Property held for a spouse
This exception applies if there is only one individual owner of a property and that property qualifies as the principal residence of the owner’s spouse or common-law partner. There is no fair market value threshold. Unlike exception (b), this exception is structured around one owner of the principal residence of the owner’s spouse or common-law partner.
Example: For creditor projection purposes, a non-working spouse is placed on title as the sole registered owner of the family home because the other spouse practices in a profession with risk of lawsuits.
Other exemptions
The above exemptions (a) to (c) are available only to bare trusts. If a bare trust does not qualify for one of the above exemptions, a bare trust might qualify under one of the general exemptions available to all trusts, such as the following:
(d) $50,000 de minimis exemption
A bare trust is exempt from filing if the fair market value of all property in the bare trust throughout the year did not exceed $50,000. There is no restriction on the type of property in the bare trust or the relationship between the trustees and beneficiaries.
(e) $250,000 family trust exemption
A bare trust is exempt from filing if all legal owners are individuals and all beneficiaries are individuals related to the legal owners. The fair market value of all property in the trust throughout the year cannot exceed $250,000 and the type of property held in the bare trust is restricted to cash, GIC’s, publicly traded securities, similar investments and personal use property.
Example: A child is added to an elderly parent’s bank account because the parent is no longer able to manage his or her financial affairs. The child has no beneficial interest in the account and was added to the account solely to accommodate the payment of monthly bills and other expenses on behalf of the parent.
(f) Trust in existence for less than three months
A bare trust is exempt from filing if the trust has been in existence for less than three months. There is no fair market value threshold, no restriction on the type of property in the bare trust, and no restriction on the relationship between the trustees and beneficiaries.
Example: To obtain financing to acquire a rental property, a child adds his or her father to title in order to co-sign the mortgage. If the father is added to title in the last three months of the year, reporting by the bare trust is not required until the following year.
More details about bare trust tax reporting can be found here: Enhanced reporting rules for trusts and bare trusts: Frequently asked questions – Canada.ca
Glen MacMillan, Tax Partner
Please contact your A+M partner if you have any questions about bare trust tax reporting or any other matter.
The above content is not complete, does not address all scenarios and is intended for general information purposes only. Many details of the law have been omitted for clarity and simplicity. This content should not be used or relied on as a substitute for consultation with your Adams & Miles professional advisor.
