What Is A Bare Trust?

Bare trusts have been the subject of extensive filing controversies. They have been commonly used to hold family cottages and other properties, to avoid probate, or for privacy purposes. CRA will not require bare trusts to file a T3 Income Tax and Information Return (T3 return), including Schedule 15 (Beneficial Ownership Information of a Trust) for the 2023 or 2024 tax year, unless they make a direct request. But, we are now in 2025 and professionals and their clients need to know the rules.

What is a bare trust? While not defined in the Income Tax Act, CRA describes a bare for tax filing purposes as “a trust arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust's property.”

So, the beneficiary has complete control; the trustee holds the title of the property.

CRA goes on to note that under these types of arrangements, the trustee has no significant powers or responsibilities and can take no action without consulting and taking instructions from each of the beneficiaries on all dealing of the trust property. In fact, the only function the trustee has is to hold the legal title to the property.  

What are the tax filing requirements? Bare trusts are not exempt from filing per se; but they have qualified for a deferral in filing. A taxable event will happen when beneficial ownership changes; all income and capital gains are reported by the beneficiary. There is no tax in the trust.

For these reasons, bare trust filings were generally ignored prior to CRA’s new requirements, which essentially are intent on identifying the stakeholders to these trusts.

What happens for the 2025 filing year? Trusts have a calendar year end. So, for the period ending December 31, 2025 a T3 return and schedule 15 will be required to be filed by a bare trust unless one of the specific exemptions is met. This includes trusts in which

• the total fair market value (FMV) of the assets in the trust is $50,000 or less throughout the tax year.
• Trusts in which all of the following conditions exist:
• All trustees and beneficiaries are individuals
• Each beneficiary is related to each trustee, and
• The total FMV of the trust property is $250,000 or less throughout the tax year. In this case however there are some restrictions. The assets must be limited to certain types of holdings: money deposits, for example, or GICs from Canadian banks, government debt obligations or debt obligations of  a publicly listed entity. In addition it is possible to hold personal-use property and listed securities in these trusts.

The criteria above were proposals at the time of writing, stemming from August 12, 2024 draft legislation.

Non-Filers – Expensive Penalties will Apply. Failure to file T3 returns and schedules carry penalties are extensive. These penalties (under subsections 163(5) and (6) of the Income Tax Act) are equal to the greater of $2,500 and 5% of the highest total fair market value of all property held by the trust in the year, with no maximum penalty. 

However, as mentioned, for bare trusts only, CRA will not the filing of a T3 Income Tax and Information Return (T3 return), including Schedule 15 for the 2023 and 2024 tax year, unless the CRA makes a direct request for these filings.

In addition, as a result of the deferral of the capital gains inclusion rate increases, CRA will grant relief of the late-filing penalties and arrears interest until May 1, 2025. This is to provide additional time for taxpayers reporting capital dispositions to meet their tax filing obligations. This relief applies to both the filing of T3 information returns (slips) and the T3 return.

Bottom Line. Know your trust filing rules; and then file the required documents before April 1, 2025 for the 2024 tax year. This will not include bare trusts unless CRA requires the filing.