Bare Trust

What is a Bare Trust?

Bare trust is a type of trust where the trustee acts as an agent for all the beneficiaries under the trust regarding all dealings with the trust’s property. Bare trusts can exist even without a written trust arrangement.

Starting from tax years ending on or after December 31, 2023, most bare trusts must file a T3 trust income tax return. This is regardless of whether there is any income to report.

What are some common examples where there may be a Bare Trust arrangement?

• Setting up a trust arrangement to hold your family cottage or investment property.
• Setting up an in-trust bank account for a child or grandchild.
• Estate planning: A common technique involves adding adult children to the legal title of parents’ property for probate planning purposes, while the parents retain all beneficial rights to the property.

 What information is to be reported?

The name, address, date of birth, country of residence, Tax Identification Number i.e., Social Insurance Number, Business Number, Trust Number (register if not available) for each:

• Trustee;
• Beneficiary;
• Settlor; and
• Any individual with the power to control or override decisions made by a trustee, such as a protector.

What is the filing deadline?

The deadline for filing is 90 days after the end of the year. If the deadline falls on a weekend, it is generally extended to the next business day.

Are there any important exceptions?

If you have a bare trust that has been active for less than three months, or holds less than $50,000 in assets during the tax year and only invests in deposits, government debt obligations, and listed securities, then it may be exempt from the new reporting requirement.

What are the penalties for non-compliance?

If a bare trust fails to submit a trust return, it will be subjected to a late-filing penalty of $25 per day, with a minimum of $100 and a maximum penalty of $2,500. If the failure to file was made knowingly or due to gross negligence, an additional penalty equal to the greater of $2,500 or 5% of the maximum value of the property held by the trust during the taxation year would be applied. The CRA will provide relief to bare trusts by waiving the penalty payable under subsection 162(7) for the 2023 tax year in situations where the T3 Return and Schedule 15 are filed after the filing deadline.

Words of caution:

We want to caution our readers that the new rules have been implemented recently, and there is currently limited guidance from the CRA or the courts. You can refer to the below link to the CRA site, that includes more up-to-date information:

New trust reporting requirements for T3 returns filed for tax years ending after December 30, 2023 – Canada.ca