As a budget bill makes its way through the legislative process, the Canada Revenue Agency (CRA) has confirmed that bare trusts don’t have to file tax returns for the 2025 tax year — and also that certain bare trusts will have to file for 2026.
“[T]he CRA does not expect bare trusts to file a T3” — including Schedule 15 with beneficial ownership information — “for taxation years ending in 2025,” the CRA said in a recent trust-reporting update. “Certain bare trusts will be required to file for taxation years ending on or after December 31, 2026.”
The CRA provided the update earlier this month after Bill C-15, which includes proposed exemptions for bare trusts from the expanded trust reporting requirements, passed second reading in the House of Commons and moved to the committee stage. However, the House is now adjourned until Jan. 26.
Budget 2025, released in November, “kicked [tax filing for] bare trusts down the road to 2026,” said Ryan Minor, tax director with CPA Canada in Sudbury, Ont., referring to the budget’s confirmation that filing for bare trusts was deferred to the 2026 tax year. Subsequently, “we were expecting” communication from the CRA, Minor said. “We wanted that assurance” that bare trust filing isn’t required for the 2025 tax year.
The expanded trust reporting requirements include detailed beneficial ownership information, introduced as a way to help counter tax evasion. With the rules, affected trusts, including affected bare trusts, are required to file an annual T3 return and Schedule 15 on time, or face penalties.
Generally, only trusts with taxes payable for the year or those that disposed of capital property or distributed income or capital had been required to file an annual trust income tax return.
While the expanded trust reporting rules were effective for the 2023 tax year, bare trusts have been exempt from filing, given the confusion that the rules generated.
In a bare trust arrangement, the trustee generally holds legal title to the trust property but is unable to take any action without direction from all beneficiaries. Examples could include co-signed mortgages and some joint bank accounts, and many taxpayers may not know they have a bare trust arrangement. The proposed filing exemptions for bare trusts — first introduced in draft legislation in 2024 and since updated — apply to such common bare trust scenarios in certain instances.
Bill C-15 includes “several statutory exceptions that significantly narrow the scope of affected arrangements,” said Emily Mantle, founder of Compass CPA in Sudbury, Ont., in an email. As previously reported, one notable example is when a parent is on title of a property solely to co-sign a mortgage for a child’s principal residence.
“That scenario is expressly contemplated in the proposed exceptions applicable to deemed trusts and, if enacted as drafted, would not trigger the enhanced trust reporting rules,” Mantle said.
While the exception is “narrow and fact-specific” and doesn’t extend to all parent-child real estate arrangements, “this is a very common fact pattern in practice, so the clarification is a welcome one,” Mantle said.
Also, the proposed legislation “continues to set out exemptions from the trust filing requirements for certain listed trusts, including certain low-value trusts and trusts holding only prescribed asset types,” subject to conditions, Mantle said.
Listed trusts that are exempt from the annual filing requirement include trusts in existence for less than three months and trusts holding assets with a fair market value (FMV) of $50,000 or less throughout the year.
Under the proposed legislation, trusts — including bare trusts — are exempt from a filing requirement given the following conditions: the trustees and beneficiaries are related to each other, the FMV of the property doesn’t exceed $250,000 throughout the year, and the trust’s assets consist of only cash, GICs, mutual funds, segregated funds, personal-use property and securities traded on a designated exchange (as well as certain other assets).
The exemption would apply when, for example, an adult child is named as joint owner of a parent’s bank account to help the parent manage their finances.
As advocated by STEP Canada and the Conference for Advanced Life Underwriting, Bill C-15 adds exempt life insurance policies (issued by a Canadian life insurer) to the list of qualifying assets in the trust, with the FMV determined by the policy’s cash surrender value.
“Oddly, in the amendments, there is no valuation rule for life insurance relating to the $50,000 blanket exemption,” wrote Florence Marino, vice-president of tax and estate planning with Tompkins Insurance Services Ltd. in Waterloo, Ont., in a blog post.
Exception for securities issued in nominee name
Bill C-15 also includes a proposed trust filing exception when securities are issued in nominee name, which gives rise to a bare trust arrangement with the securities dealer or custodian as trustee. The exception specifies that information returns for the trust’s income and gains must be issued to trust beneficiaries (i.e., investors).
“The relief means fewer filings and lower compliance costs,” the Canadian Forum for Financial Markets (CFFiM), which advocated for the exception, wrote in a blog post.
The CFFiM has recommended further legislative revisions, including that dealers not be subject to the list of qualifying assets. “[T]here is no policy rationale for limiting the properties held in a bare trust arrangement in order to be exempt from bare trust reporting,” the CFFiM wrote in a letter to Finance.
For example, Finance shouldn’t be concerned about tax evasion regarding securities issued in nominee name “since there is already a requirement that information on income and gains of the bare trust be reported” for the exception to apply.
Other changes to the proposed legislation could also be considered in the new year.
“Not all of the issues raised during the consultation and committee process appear to be fully reflected in the current draft,” Mantle said, “so it will be important to watch whether further refinements are made as the bill progresses through Parliament.”
Still, the policy direction is clear, she said: “The government is seeking to preserve expanded transparency [of beneficial ownership information] while introducing more precise and targeted carveouts than originally proposed.”
The 2026 tax year
Mantle provided the following examples of bare trust arrangements that may be required to file for the 2026 tax year:
- nominee or holding arrangements involving rental or investment property, in which an individual or corporation holds legal title for another, and the property is not a principal residence;
- corporate nominee arrangements within related groups, in which one corporation holds property or investments strictly as agent for another;
- administrative bare trust structures, such as situations in which professionals hold assets in name only for clients (e.g., lawyer’s trust account), unless a specific statutory exception applies.
For professionals advising clients, “the period leading up to the 2026 tax year provides a further opportunity to identify nominee and bare trust arrangements and assess whether they fall within or outside the proposed statutory exceptions,” Mantle said.
The trust reporting legislation is “fairly complex,” Minor said. “There’s an education component to it, to get ready” for filing for the 2026 tax year.
He suggested guidance on bare trust filing would be helpful. “It’d be nice for the CRA to … give examples of situations where they’re not expecting a return,” he said, or “common situations where they’re expecting a return.”
The CRA has so far provided frequently asked questions about bare trust reporting.
Widespread confusion
While the expanded trust reporting rules were effective for trusts with year-ends on Dec. 31, 2023 and after, the CRA provided a last-minute filing exemption for bare trusts for the 2023 tax year after the legislation generated widespread confusion.
The legislation was burdensome and its concept of bare trust was too broad, the Taxpayer’s Ombudsperson said in a subsequent review of the CRA’s role in administering the legislation (as opposed to Finance’s role in creating it).
Despite the 2023 filing exemption, the CRA told this publication in early July 2024 that 52,000 trust returns had been filed for bare trusts for 2023. The review by the Taxpayer’s Ombudsperson outlined CRA communication limitations and failures that contributed to the wasted time, effort and cost incurred by tax practitioners and taxpayers.
Among the review’s recommendations was that, by March 31, 2026, the CRA assess how it collaborates with stakeholders when legislative amendments have been enacted by Parliament, how it works with Finance when administering a legislative proposal that could increase taxpayers’ compliance costs and how it communicates updates with taxpayers through tax tips and news releases.
The Taxpayer’s Ombudsperson also recommended that the CRA assess whether a unique filing form for bare trusts is needed for easier reporting.
For bare trusts, “the [filing] questions that relate to a taxable trust are irrelevant,” Minor said. “Why not have a simplified form, because this [filing requirement] is already difficult enough to comply with.”
The CRA has told CPA Canada that once the agency has certainty about the proposed legislative changes, the agency will revisit the possibility of creating a return specific to bare trusts.