What Is a Bare Trust in Canada?
A bare trust is a trust arrangement where a trustee holds legal title to property or assets on behalf of a beneficiary, but has no active duties, powers, or discretion to exercise — they simply hold title as directed by the beneficial owner. The beneficial owner effectively owns and controls the property; the trustee is merely a name on the title.
Bare trust arrangements are extremely common in everyday Canadian life — often without the parties realizing it:
- A parent holds a bank account “in trust” for a minor child
- A family member is added to a property’s title to facilitate estate planning or mortgage qualification
- A corporation holds registered title to real estate on behalf of its shareholders
- A nominee arrangement where Agent A holds legal title to an asset at the direction of Principal B
- A real estate lawyer holds closing funds in trust for a short period
Until recently, bare trusts were largely invisible to the CRA — they rarely filed tax returns, and the CRA had limited visibility into their existence. This changed dramatically in 2023 and 2024 with new T3 filing requirements that sent millions of Canadians scrambling to determine whether their arrangements constituted a bare trust subject to new reporting rules.
For guidance on bare trust T3 filing obligations in Ontario, contact Pathak Professional Corporation in Mississauga at 437-872-7399.
The New T3 Bare Trust Reporting Rules (2023 Onward)
What Changed
For tax years ending after December 30, 2022 (i.e., starting with the 2023 taxation year), the CRA introduced sweeping new T3 filing requirements requiring trusts — including bare trusts — to file a T3 Trust Income Tax and Information Return and Schedule 15 (Beneficial Ownership Information).
Schedule 15 requires disclosure of:
- Name, address, date of birth, country of residence, and tax identification number (SIN/BN) for each trustee, beneficiary, settlor, and person who has the ability to exert influence over trustee decisions
- This is essentially a “beneficial ownership register” in trust return form
The 2023 Filing Disaster and CRA’s Response
The 2023 T3 filing requirement (for bare trusts with December 31, 2023 taxation years) caused enormous confusion. Millions of Canadians suddenly discovered they may be party to a bare trust — including parents of minor children, family cottage co-owners, and adults named on aging parents’ property titles for estate planning purposes.
After significant public backlash and industry pushback, the CRA announced an administrative relief measure for the 2023 tax year: bare trusts were not required to file a T3 for the 2023 taxation year (deadline March 31, 2024) if the trustee’s only activity was holding property as a bare trustee. The CRA stated it would not impose penalties for non-filing of bare trusts for 2023, provided good faith compliance in future years.
For 2024 and onward: Bare trusts that meet the filing criteria ARE expected to file T3 returns. The CRA has signaled that the administrative relief granted for 2023 will not automatically extend to 2024 filing year (returns due March 31, 2025).
Do You Have a Bare Trust? Common Scenarios
| Situation | Likely Bare Trust? | Notes |
|---|---|---|
| Parent added to adult child’s mortgage/property title to help them qualify | ✅ Very likely YES | Parent holds legal title; child is beneficial owner and occupant |
| Adult child added to elderly parent’s bank account for convenience | ✅ Likely YES | Child is trustee/nominee; parent is beneficial owner |
| Siblings co-own inherited family cottage with unequal beneficial interests vs. equal title | ✅ Possibly YES | Depends on whether legal title matches beneficial ownership |
| Holding company owns investment property on behalf of individual shareholders | ✅ Possibly YES | Depends on structure — corporation may be acting as bare trustee |
| Joint account opened for a minor child by a parent | ✅ Likely YES — until 2023 relief applies | Review 2024 requirements carefully |
| Normal joint ownership where both parties equally own and control the property | ❌ Likely NO | True joint ownership is not a bare trust |
| Normal registered trust with trustee having active duties (discretionary family trust) | ❌ NOT a bare trust | Discretionary trusts are subject to full T3 trust return requirements regardless |
T3 Bare Trust Filing Requirements: What Is Required
Who Must File
A T3 return is required for a bare trust when:
- The trust exists at any point during the taxation year
- The trust has Canadian-resident trustees (or Canadian assets)
- The trust does not qualify for an exemption (see below)
Key Exemptions (No T3 Required)
- Trusts in existence for less than 3 months at the end of the year
- Trusts holding assets with total fair market value under $50,000 throughout the year (if assets consist only of deposits, government debt obligations, or listed securities)
- Graduated Rate Estates (GREs)
- Certain registered plans (RRSPs, TFSAs, RRIFs, RESPs) with individual or spousal/common-law partner plan holders
T3 Filing Deadline
The T3 return is due 90 days after the end of the trust’s taxation year. For most bare trusts with a December 31 year end, this means the T3 is due March 31 of the following year.
Penalties for Non-Filing
The penalty for failing to file a T3 return when required is:
- $25 per day, minimum $100, maximum $2,500 (general late-filing penalty)
- For intentional non-compliance or false/misleading information: additional penalties up to 5% of the maximum value of property held by the trust during the year — which can be enormous for real property holdings
Tax Treatment of Bare Trust Income
For income tax purposes, income earned in a bare trust arrangement is generally reported by the beneficial owner (not the trustee) on their personal T1 return — as if the trust did not exist. The trustee is a mere holder of title; the underlying income flows through to the beneficial owner and is taxed in their hands.
Practical implications:
- If you hold title to rental property as a bare trustee for your adult child, the rental income should be reported by the child (beneficial owner) — not you
- If a parent holds title as a nominee but the adult child pays the mortgage and lives there, the principal residence exemption belongs to the child
- Capital gains on disposition of the property are reported by the beneficial owner at their marginal rate
Frequently Asked Questions: Bare Trust Canada
Does my parent on my property title create a bare trust T3 filing obligation?
Quite possibly. If your parent’s name is on your property title solely to help you qualify for a mortgage, but you live in the property, pay the mortgage, and have all beneficial ownership rights, this is a classic bare trust arrangement. As the trustee, your parent would have a T3 filing obligation (subject to available exemptions) for tax years after 2023. The CRA provided administrative relief for 2023 bare trust non-filers, but this relief did not apply to 2024 and beyond. If you have this arrangement, consult a Mississauga CPA immediately to assess whether a T3 must be filed for 2024 (due March 31, 2025).
What is the penalty for not filing a bare trust T3 return in Canada?
The standard T3 late-filing penalty is $25 per day, minimum $100, maximum $2,500. However, for intentional non-compliance or gross negligence in bare trust reporting, the CRA can impose an additional penalty of up to 5% of the maximum fair market value of property held during the year. For a real estate bare trust arrangement where the property is worth $1,000,000, this gross-negligence penalty could be up to $50,000. The combination of administrative confusion and large potential penalties makes professional guidance essential for property owners who may have bare trust obligations.
Is my RRSP or TFSA a bare trust that must file a T3?
No — registered plans including RRSPs, TFSAs, RRIFs, RESPs, and FHSAs are specifically exempted from the T3 bare trust filing requirements when they have an individual (or spousal/common-law partner) as the plan holder. These registered accounts already have separate reporting requirements through the financial institution holding them and do not require a separate T3 trust return from the account holder.
Should I restructure my bare trust arrangement to eliminate the filing obligation?
Potentially, but restructuring a bare trust has its own tax and legal implications. If a parent is removed from a property title, that transfer may trigger a deemed disposition with capital gains consequences. If a bank account is closed and re-opened in the child’s name only, that transition must be done correctly to avoid attribution of income. Before restructuring any bare trust arrangement, consult both a CPA and a real estate lawyer in Ontario to understand the full tax and legal consequences of the change. In many cases, the annual cost of filing a T3 return is lower than the tax cost of restructuring the arrangement — particularly for long-held appreciated properties where removing a trustee would trigger capital gains.
