New bare trust reporting rules have been enacted and will apply to taxation years ending on and after December 31, 2026. The rules are aimed at increasing transparency about who beneficially owns assets held through bare trust arrangements. For most bare trusts, the first return will be due March 31, 2027.
Many individuals and businesses may be unaware of their trust-like relationships, which could expose them to potential penalties and other consequences for non-compliance.
A bare trust can exist even when there is no formal trust document or written agreement, and no lawyer involved. For this reason, we recommend that you review your financial interests to determine whether any bare trust arrangements may exist and whether the new reporting requirements could apply.
What is a bare trust arrangement?
In simple terms, a bare trust exists when the name on the asset is not the person or entity that really owns it. To determine if a bare trust arrangement exists, the following questions should be asked:
- Who is the legal owner of the property or asset? This is generally the person or entity whose name appears on legal title or who otherwise holds the asset.
- Who is the beneficial owner of the property or asset? This is generally the person or entity who has the rights and obligations of the property or asset. For example, in the case of real estate, who has the right to use, collect rent and decide when to sell? Who is responsible for maintaining the property and paying its costs, such as property taxes?
If the legal owner differs from the beneficial owner, then a bare trust arrangement likely exists. There are countless possible bare trust arrangements. The following are some common examples. Certain exceptions may apply in these scenarios. These are fact-specific and should be discussed with us.
Common Individual Arrangements
- A parent or grandparent holds an investment or bank account in trust for a child or grandchild.
- One spouse is on title to a home, although the other spouse is at least a partial beneficial owner.
- A parent is on title to a child’s home (without the parent having beneficial ownership) to help the child obtain a mortgage.
Estate Planning Arrangements
- A child is on title of a parent’s home (without the child having beneficial ownership) for probate, estate planning, or in case the parent can no longer manager their affairs.
- A child is on a parent’s bank, investment, or other financial account to help with administration after the parent’s passing.
Business and Commercial Arrangements
- Shareholders or related individuals open a bank account in their own names, with the corporation being the beneficial owner of the funds.
- A corporation is on title of an individual’s real estate, vehicle, or other asset, or vice versa.
- Assets are registered in the name of one corporation but are beneficially owned by a related corporation.
- A partner holds a bank account or asset for the benefit of the partnership or other partners.
- A joint venture where the operator holds legal title to development property on behalf of the other participants.
- In a cost-sharing arrangement, a shared bank account or asset where one party has no, or only partial, beneficial ownership.
Industry-Specific Arrangements
- A property management company holds operational bank accounts in trust for clients or related property owners.
- A lawyer or other professional maintains a specific or general trust account.
What’s at Stake
If a bare trust is required to file a T3 Return and, where applicable, Schedule 15 and does not, penalties of up to $2,500 per year may apply. Where the failure to file is considered deliberate or careless, the penalty can be the greater of $2,500 and 5% of the highest value of the trust property during the year.
Each return also requires detailed information about every person involved, including names, addresses, dates of birth and social insurance numbers. This can take time to gather, which is another reason to start early.
What we recommend you do now
As a practical next step, we recommend that you review your financial interests using the characteristics and examples above. In particular, look for situations where an asset is held in the name of someone other than the person or entity that beneficially owns, controls, or benefits from it. These may involve real estate, bank accounts, investment accounts, corporate assets, nominee arrangements, joint ventures, estate planning structures, or other similar arrangements.
To avoid last-minute filing issues, please contact us as soon as possible if you believe any of these arrangements may apply to you. Our team would be happy to help you review the facts and determine the appropriate next steps.
This information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a summary such as this, a further review should be done by a qualified professional. No individual or organization involved in either the preparation or distribution of this document accepts any contractual, tortuous, or any other form of liability for its contents or for any consequences arising from its use.
