Bare Trusts Tax Consequences: Canadian Tax Lawyer Guidance

Overview: Bare Trusts and Canadian Tax Law in 2026

A bare trust is one of the most common trust arrangements in which a Canadian taxpayer can find himself or herself without realizing it, and one of the most misunderstood when it comes to reporting obligations. Whether a parent is added to a child's home title for financing purposes, a nominee corporation holds legal title to real estate, or a family member is added to a bank account for convenience, these everyday arrangements can quietly meet the legal definition of a bare trust.

This matters more than ever heading into the 2026 taxation year. After several years of administrative relief, certain bare trusts will be required to file a T3 Trust Income Tax and Information Return, including Schedule 15 beneficial ownership disclosure, for taxation years ending on or after December 31, 2026. Missing this filing can expose a taxpayer to significant penalties and a CRA tax audit.

This article explains what a bare trust is, how it is taxed, how to determine whether one exists, and what the 2026 reporting rules mean in practice. It also explains a critical exception involving the GST/HST New Housing Rebate that continues to trip up taxpayers who assume bare trusts are always tax-invisible.

Consult our Toronto tax law firm before entering into, relying on, or unwinding a bare trust arrangement.

Background: What is a Bare Trust?

The concept of a trust finds its roots in equity, which distinguishes legal ownership from beneficial ownership. A person legally owns a property if his or her name is on title, yet the beneficial owner is the real owner of the property even though it is registered in someone else's name.

A trust is essentially a relationship between a trustee, the trust property, and a beneficiary, whereby the trustee holds legal title to the trust property and manages it for the beneficiary's benefit.

A bare trust is a narrower version of this relationship: the trustee has no obligation other than to deal with the trust property in accordance with the beneficiary's directions. Under a bare trust, the beneficiary retains complete control over the trustee's dealings with the trust property, and the trustee has no independent discretion, powers, or responsibilities of his or her own.

As such, a bare trust is primarily an agency relationship in which the bare trustee holds title to property as the beneficiary's agent. See our summary of agency principles in Canadian tax law to learn more.

An agency relationship exists where the parties agree that one person, the agent, will act in accordance with the directions of the other, the principal. A bare trust arises when the parties agree that the bare trustee will act in accordance with the directions of the beneficiary with respect to the trust property. The trust property is the property over which the beneficiary enjoys true ownership, but to which the bare trustee holds legal title.

Bare trusts do not need to be set up formally. They commonly arise in situations such as an adult child added to a parent's bank account to help manage day-to-day finances, a parent added to the title of a child's home to help secure mortgage financing, or a nominee corporation holding legal title to a commercial property on behalf of its beneficial owners. None of these arrangements requires a lawyer or a written trust deed to exist for tax purposes, which is precisely why so many Canadians have been caught off guard by the reporting rules discussed below.

Key Issues and Findings: How Bare Trusts Are Taxed and Reported

Income Tax Treatment

Because the beneficiary retains beneficial ownership over property subject to a bare trust, Canada's income tax law generally looks through the bare trustee. If a person retains beneficial ownership while transferring legal title to a bare trustee, the transfer does not constitute a disposition for tax purposes. By directing a bare trustee to acquire and deal with his or her property, the beneficiary does not trigger a taxable event. If, in accordance with the beneficiary's directions, the bare trustee sells that property to a third party, the transaction is taxed as though the beneficiary dealt directly with the third party. Subsection 104(1) of the Income Tax Act supports this treatment by deeming an arrangement that acts as agent for all its beneficiaries not to be a trust at all for most purposes of the Act.

GST/HST: The Rule and Its Exception

The same general principle generally holds true for GST/HST purposes, and courts will typically ignore a bare trust when applying the provisions of the Excise Tax Act. There is, however, an important exception. A bare trustee is not ignored for purposes of the GST/HST New Housing Rebate under section 254 of the Excise Tax Act.

In Cheema v The Queen (2016 TCC 251), the Tax Court of Canada considered a case where a purchaser recruited a friend to co-sign an agreement of purchase and sale purely to help secure mortgage financing, with the friend holding his 1 percent interest as bare trustee for the purchaser's benefit. On appeal, a majority of the Federal Court of Appeal held in The Queen v Cheema (2018 FCA 45) that a new home purchaser cannot claim the GST/HST New Housing Rebate if a co-signer of the purchase agreement does not also occupy the home, even where the co-signer acted only as a bare trustee. The Supreme Court of Canada denied the taxpayer's application for leave to appeal in 2019, leaving the Federal Court of Appeal's decision as the governing law. As a result, every signatory to a new home purchase agreement must independently satisfy the occupancy requirement, regardless of whether one of them held title only as a bare trustee. Before relying on a bare trust arrangement in a real estate purchase where the New Housing Rebate is a factor, taxpayers should first confirm with a Canadian tax lawyer that the arrangement will actually produce the tax result they are expecting.

Trust Reporting Rules and the Path to 2026

Bare trusts have been at the centre of one of the most disruptive rollouts in recent Canadian tax administration. The enhanced trust reporting rules, originally intended to apply beginning with the 2023 taxation year, would have required most bare trusts to file a T3 return along with Schedule 15 beneficial ownership disclosure, even where the trust earned no income. After widespread confusion among taxpayers who did not realize that ordinary arrangements, such as a parent on a child's property title, could constitute a bare trust, the CRA announced on March 28, 2024 that it would not require bare trust filings for the 2023 taxation year absent a direct request. Bare trusts remained excluded from the filing requirement for the 2024 and 2025 taxation years as well.

That relief is coming to an end. Bill C-15 received Royal Assent on March 26, 2026 and amended the trust reporting rules under the Income Tax Act. Under the amended rules, certain bare trusts, referred to as reportable bare trusts, will be required to file a T3 return and Schedule 15 for taxation years ending on or after December 31, 2026.

Bill C-15 also broadened the statutory exemptions available to bare trusts, including exemptions where the trust has existed for less than three months, where the trust's assets consist only of cash, government debt, or listed securities with a total fair market value of $50,000 or less throughout the year, and where every legal owner of the trust property is also a beneficiary and every beneficiary is also a legal owner. Many common family arrangements, such as certain joint spousal accounts and a parent added to the title of a child's principal residence for financing purposes, are expected to fall within these exemptions, but many others, including some nominee corporation structures used in commercial real estate, will not.

The table below illustrates how several common arrangements are generally expected to be treated. This is a general illustration only. Whether a specific arrangement is exempt depends on the full facts, and taxpayers should not rely on this table in place of a review by a Canadian tax lawyer.

A trust that must file for its 2026 taxation year will generally need to do so within 90 days of its year end, which for most arrangements means a March 31, 2027 deadline, and will need a trust account number obtained in advance from the CRA. Late filing penalties are $25 per day, subject to a minimum of $100 and a maximum of $2,500, with an additional penalty equal to the greater of $2,500 or 5 percent of the trust property's maximum value where a failure to file was made knowingly or through gross negligence. Because whether a specific bare trust exemption applies depends heavily on the facts, and because thresholds such as the $50,000 asset test must be satisfied throughout the entire year rather than at a single point in time, taxpayers and trustees should not assume an exemption applies without confirming it against their actual arrangement.

See our overview of the trust reporting rules and the associated CRA tax audit risk for a closer look at how the CRA is expected to enforce these rules going forward, and our earlier coverage of the 2023 filing suspension and the original 2023 rollout of the reporting rules for background on how this regime evolved.

How Do You Determine Whether a Bare Trust Has Been Created?

Because a bare trust is essentially a principal-agent relationship in which the agent holds legal title to property that the principal beneficially owns, the principles of agency law govern whether a bare trust exists. An agency relationship may arise by express agreement, commonly in writing, by conduct or the surrounding circumstances, or retrospectively through the principal's ratification of acts done on his or her behalf.

The essential ingredients of an agency relationship are that the principal and agent both consent to the relationship, the principal has given the agent authority to affect the principal's legal position, and the principal retains control over the agent's actions. The parties need not reduce their agreement to writing. If no written agency agreement exists, their conduct determines whether they intended to create one.

The key feature is the level of control the alleged principal exerts over the alleged agent. In an agency relationship, the principal retains beneficial ownership of any property subject to that relationship. When an agency relationship calls for the agent to acquire the principal's property, a bare trust potentially arises: if the agent acquires the property with the sole responsibility of carrying out the principal's instructions, the agent holds that property as a bare trustee while the principal enjoys the rights of beneficial ownership, namely the rights to use, possess, dispose of, earn income from, and destroy the property. If the alleged agent need not accept the principal's instructions, or has significant independent power, discretion, or responsibility over the property, he or she is neither an agent nor a bare trustee.

If the parties have not reduced their agreement to writing, several factors bear on whether a bare trust has been created with respect to a property, including whether the purported bare trustee deals with the alleged trust property without the purported beneficiary's direction or permission, and whether the purported bare trustee derives any personal benefit from the alleged trust property.

Practical Implications for Canadian Taxpayers

For most Canadian taxpayers, the practical effect of a bare trust is that the income tax consequences of holding, using, and disposing of property flow through to the beneficiary rather than the bare trustee. That treatment is generally favourable, since it avoids double taxation and preserves personal tax attributes such as the principal residence exemption for the true owner. The exceptions matter just as much as the general rule.

The GST/HST New Housing Rebate decision in Cheema shows that a bare trust will not always be ignored where a specific statutory provision looks at the identity of every legal owner rather than only the beneficial owner. The incoming 2026 reporting rules show that even where a bare trust is tax-invisible for income tax purposes, it is not invisible to the CRA's reporting requirements.

Taxpayers who are unsure whether they hold, or have created, a bare trust should take stock of every arrangement where their name appears on legal title to property they do not consider themselves to beneficially own, and every arrangement where someone else's name appears on title to property that the taxpayer considers to be his or her own. This includes joint bank accounts held for a parent's convenience, in-trust-for accounts maintained for a minor, and nominee corporations used to hold real estate.

Resources:

• In-trust-for (ITF) account
• Changes to the reporting obligations of trust executors and trustees.

Trustees who are engaged in commercial activity through a bare trust structure, such as earning trustee fees or managing property as an agent for beneficial owners, should also confirm their GST/HST registration obligations.

Resources:

• GST/HST bare trustee registration and the New Housing Rebate
• holding cryptocurrency as a bare trustee.

Taxpayers who have unfiled bare trust returns going back to a year in which filing was actually required, or who discover an unreported disposition connected to a bare trust arrangement, should not simply file late. Late filing without professional guidance can trigger a full full CRA tax audit of the arrangement. Taxpayers in this position should first speak with a Canadian tax lawyer about whether a voluntary disclosure is appropriate before submitting anything to the CRA.

“The trap with bare trusts isn't the income tax result, it's everything else attached to them. Clients assume that because CRA looks through a bare trust for income tax purposes, the arrangement is invisible to CRA altogether. That was never entirely true because of cases like Cheema, and starting with the 2026 taxation year it becomes even less true. If you're the one whose name is on title, whether as a parent helping a child qualify for a mortgage or as a nominee corporation holding commercial real estate, you need to know now whether you have a filing obligation, not in March 2027 when the return is already late.”

— David J. Rotfleisch, Certified Specialist in Taxation Law (Law Society of Ontario)

Takeaway

A bare trust is easy to create by accident and, for most income tax purposes, easy for the CRA to ignore. Neither of those facts means a bare trust can be ignored by the taxpayer. The GST/HST New Housing Rebate cases confirm that specific statutory provisions can look past the bare trust structure entirely, and the 2026 trust reporting rules confirm that even a tax-invisible bare trust can carry real filing obligations and real penalties for non-compliance. Any taxpayer who suspects he or she is a party to a bare trust, whether as trustee or beneficiary, should confirm his or her filing position before the 2026 taxation year rather than after a CRA tax audit begins.

Pro Tax Tips

If parties intend to create a bare trust, they should execute a written bare trust agreement, and parties who have already entered into an oral bare trust arrangement should memorialize it in writing as soon as possible. While a bare trust can exist without a written agreement, the CRA will likely dispute the existence of a bare trust in the absence of documentary evidence, particularly now that bare trusts carry independent reporting consequences. A well drafted bare trust agreement should clearly identify the trustee, the beneficiary, the trust property, and the trustee's lack of independent discretion over that property, since these are the same factors a court or the CRA will examine when determining whether a bare trust actually exists.

“CRA doesn't have to take your word for a bare trust. If there's no paper trail showing the trustee has zero discretion, CRA's default position will be that you own the property outright, full stop, and you'll be the one proving otherwise. A short written agreement drafted properly, before there's ever a dispute, is far cheaper than trying to reconstruct one after a reassessment.”

— David J. Rotfleisch, Certified Specialist in Taxation Law (Law Society of Ontario)

Taxpayers who are approaching the 2026 taxation year should also review every arrangement in which they hold legal title for someone else, or someone else holds legal title for them, well before year end, since several of the new statutory exemptions depend on asset values and ownership structures being tested throughout the entire year rather than on a single date. An experienced Canadian tax lawyer can review an existing or proposed bare trust arrangement, confirm whether a 2026 filing obligation applies, and prepare the documentation needed to support the position taken.

FAQs

What is a bare trust in Canada?

A bare trust is an arrangement in which one person, the bare trustee, holds legal title to property while another person, the beneficiary, retains full beneficial ownership and control. The bare trustee has no independent powers or responsibilities and must act strictly on the beneficiary's instructions.

Does a bare trust pay income tax in Canada?

No. For income tax purposes, a bare trust is generally disregarded, and all income, gains, and losses connected to the trust property are taxed in the beneficiary's hands as though the beneficiary dealt with the property directly.

Do bare trusts have to file a T3 return?

Bare trusts were not required to file a T3 return for the 2023, 2024, or 2025 taxation years, apart from cases where the CRA made a direct request. Certain bare trusts, referred to as reportable bare trusts, will be required to file a T3 return, including Schedule 15, for taxation years ending on or after December 31, 2026.

What is Schedule 15 and does it apply to bare trusts?

Schedule 15 is the Beneficial Ownership Information of a Trust schedule filed with a T3 return. It requires detailed information about a trust's trustees, beneficiaries, settlors, and any person with influence over the trust. Reportable bare trusts that are not exempt will need to file it for 2026 and later taxation years.

Are there exemptions from the 2026 bare trust filing requirement?

Yes. Exemptions are expected to apply where the bare trust has existed for less than three months, where its assets total $50,000 or less in cash, government debt, or listed securities throughout the year, and where every legal owner is also a beneficiary and every beneficiary is also a legal owner. Many joint spousal arrangements and parent-on-title-for-financing scenarios are expected to qualify, but the analysis is fact specific.

What happens if a required bare trust return is filed late?

Late filing penalties are $25 per day, subject to a minimum of $100 and a maximum of $2,500. An additional penalty equal to the greater of $2,500 or 5 percent of the trust property's maximum value can apply where the failure to file was made knowingly or through gross negligence.

Does a bare trustee need to register for GST/HST?

A bare trustee engaged in commercial activity, such as earning trustee fees or managing trust property as an agent for the beneficial owners, may be required to register for GST/HST unless an exception applies. A currently registered bare trust can apply to cancel its registration, effective the day the cancellation is filed.

Can a bare trust claim the GST/HST New Housing Rebate?

Not automatically. Under The Queen v Cheema (2018 FCA 45), every signatory to a new home purchase agreement, including someone who signed only as a bare trustee, must independently meet the occupancy requirement in order for the rebate to be available.

Do I need a written agreement to create a bare trust?

No, a bare trust can arise from the parties' conduct alone. However, the CRA will likely dispute the existence of a bare trust without documentary evidence, so a written bare trust agreement is strongly recommended, particularly given the 2026 reporting rules.

Are joint bank accounts or joint property titles automatically bare trusts?

Not automatically, but they are among the most common ways a bare trust arises without the parties realizing it. Whether a bare trust exists depends on the level of control the party on title actually has over the account or property, and whether that party is required to follow the other party's instructions.

What is the difference between a bare trust and a regular trust?

In a regular trust, the trustee generally has independent powers, discretion, and responsibilities over the trust property. In a bare trust, the trustee has none of these and must simply carry out the beneficiary's instructions, making the bare trustee's role closer to that of an agent than a traditional trustee.

I think I might already have an undisclosed bare trust from a prior year. What should I do?

Speak with a Canadian tax lawyer before filing anything. Depending on the facts, a voluntary disclosure may be the appropriate way to correct a prior year's filing position without triggering the penalties associated with a CRA-initiated tax audit.

Published: March 5, 2021
Last Updated: September 16, 2026