Are you a Canadian property owner, bank account holder, or estate planner? If so, what is a bare trust? This user-friendly yet powerful financial instrument plays an important role in the financial and tax planning strategy of most individuals. Let’s look at the Bare Trust Canada rules and CRA bare trust filling within our new revised tax system.
What is a bare trust?
A lot of newbies ask, what is a bare trust? A bare trust is when a trustee holds assets—such as property, investments, or cash—legally in the name of a beneficiary, who retains full control over the assets. The trustee merely has an administrative function; they have no real decision-making power.
In Bare Trust Canada, the beneficiary takes all the decisions, and the trustee must act on their directions without delay. This simple setup is most appropriate for uncomplicated asset ownership or estate planning cases.
Why would you use a bare trust?
Bare trusts are commonly used in Canada to separate legal and beneficial ownership for strategic reasons, including:
- Creditor protection:
A trusted family member may hold the legal title to keep assets less visible to potential creditors.
- Estate planning:
Parents often place property in their children’s names to avoid probate while retaining beneficial ownership.
- Access to legal-owner benefits:
Financing – A legal owner (e.g., parent) may qualify for a mortgage the beneficial owner cannot.
Lower fees – Individuals may receive better rates on accounts or insurance than corporations.
- Business efficiency:
In joint ventures, one partner may hold title on behalf of others to streamline transactions.
Bare trusts also allow families to transfer assets quickly and privately, making them a simple and effective estate planning tool.
CRA bare trust filing: What’s changed?
Until recently, bare trusts operated below the radar with few disclosure obligations. CRA has imposed requirements for CRA bare trust filing recently, however. Trustees must now file a T3 Trust Income Tax and Information Return where the trust has no income or activities.
In bare trust reporting, the trustee, settlor, and beneficiaries’ detailed information has to be reported to the CRA. Missing or incorrect reporting can result in heavy penalties and thus make bare trust reporting a priority for the trustees.
Are bare trusts exempt from CRA?
No, bare trusts are not exempt from Canada Revenue Agency (CRA) reporting requirements. Recent changes to tax rules have made it clear that bare trust arrangements in Canada must meet the same reporting obligations as other types of trusts—even if the trust doesn’t earn income or generate any tax liability.
Failing to file the required CRA bare trust return can result in significant penalties. Even unintentional non-compliance may lead to fines, which is why it’s important to stay proactive.
Is a Joint Bank Account Considered a Bare Trust in Canada?
In some cases, yes. A joint bank account may qualify as a bare trust if it’s set up for convenience or estate planning purposes, where only one party is the true owner of the funds and the other is added simply to help with transactions or for survivorship rights.
However, not all joint accounts are considered bare trusts—it depends on the intent of the account holders and supporting documentation. For example, if a parent adds an adult child to a bank account to help with bill payments, but the child has no real ownership of the funds, this may create a bare trust relationship.
To determine whether your joint account qualifies as a bare trust—and whether it must be reported under CRA rules—it’s best to consult with a tax or estate planning professional. They can review your specific situation and guide you through the correct reporting process.
Final Thoughts
The Canada Revenue Agency (CRA) now requires everyone using a bare trust to file certain reports—even if the trust doesn’t earn any income. These rules apply to anyone involved in a bare trust, and missing a filing can lead to serious fines.If you’re setting up a bare trust in Canada, already managing one, or just want to make sure your assets are protected, our estate tax planning service in Mississauga can help. We’ll take care of the paperwork, explain what you need to do in plain language, and make sure everything is filed correctly and on time. Our goal is to keep things simple for you and give you peace of mind.