Wondering whether you must file a trust tax return for a bare trust for the 2023 tax year? The Canada Revenue Agency updated its guidance on March 28, 2024, to say that bare trusts are exempt from trust reporting requirements for 2023. That announcement eases immediate filing obligations for many people, but if you share assets, it’s still important to understand the rules. This updated column answers common questions about bare trusts, who must file, and what to expect going forward.
Ask MoneySense
I would like some clarification on the T3 tax return for the year 2023. Whom does this rule apply to and can you clarify whether all the persons on the account have to complete T3 tax returns?
—Chander
What is a bare trust?
The Income Tax Act does not offer a strict legal definition of a bare trust. The CRA explains a bare trust for income tax purposes as an arrangement in which the trustee acts essentially as an agent for the beneficiaries for all dealings with the trust property. In practical terms, a bare trust exists when one person holds legal title to an asset while the benefits of ownership belong to someone else.
Bare trusts are often informal: they can arise simply by adding someone’s name to a bank account or to a property title. They contrast with formal trusts that are typically created with legal documents and clear fiduciary responsibilities.
Common bare trust situations
Examples where a bare trust might arise include:
- a parent co-signing a mortgage and appearing on title while the child is the beneficial owner;
- a parent or grandparent holding an account in trust for a minor;
- an adult child placed on a parent’s bank, investment accounts or property title for estate-planning or administrative convenience.
Who must file a trust tax return?
Trustees—the people who legally hold title to trust property—are responsible for filing a T3 Trust Income Tax and Information Return when required. In the examples above, the parent, grandparent or adult child who holds title would be the trustee who may need to file.
However, the CRA exempts certain trusts with total assets under $50,000 from T3 filing requirements. Also, for the 2023 tax year specifically the CRA has indicated an exemption for bare trusts in its March 28, 2024 announcement; many trustees therefore will not need to file for that year. Still, it remains important to determine whether an exemption applies to your specific situation.
Required tax filings for bare trusts
Under the general rules, bare trusts must file a T3 return for a taxation year. In practice, the CRA has said bare trusts can often file a minimal T3: identification information, the trust type (code 307 for bare trust), trust creation date and a completed Schedule 15. Much of the remaining form may be left blank because income from bare trust property is reported directly on the beneficiary’s personal tax return.
If this is the first year of filing, trustees may be required to provide a copy of any trust documentation to the CRA if it has not been supplied previously. Where applicable, the return should indicate whether it is a final return and include certification and preparer information.
How to name the trust and obtain a trust number
Every trust must be identifiable to the CRA. A straightforward naming convention works well—for instance, “Ms. Andrews trust” if Ms. Andrews is the sole beneficiary. For multiple beneficiaries, the CRA suggests listing names alphabetically by last name followed by the word “trust.”
The trust also needs its own trust account number so the CRA can identify it. The CRA offers online registration services—via My Account, My Business Account, or Represent a Client—to register a trust and receive a trust number.
Deadlines and penalties
T3 returns are normally due within 90 days of the trust’s year-end. For calendar-year trusts, that deadline falls in the spring. Late filing penalties typically apply at $25 per day up to a $2,500 maximum, and in some cases the CRA may assess a penalty equal to 5% of the highest market value of trust property or a minimum amount. For the 2023 taxation year, however, the CRA said it would waive the usual late-filing penalty where returns and Schedule 15 are submitted late for reasons other than gross negligence, as part of an education-first approach.
Underused Housing Tax (UHT) and trusts
Trusts that own residential real estate may also have to file a UHT-2900 Underused Housing Tax Return to claim available exemptions from the underused housing tax. Bare trusts that do not own residential property are generally not subject to UHT filing. Proposed legislation from the federal government has suggested further exemptions for some Canadian trusts from the UHT filing obligation, but any changes depend on whether draft rules are enacted into law.
What the rule changes mean for Canadians
Many Canadians who previously had no tax or legal reporting obligations because their arrangements were informal now face new filing obligations or must at least check whether an exemption applies. The CRA’s educational stance and the waiver for 2023 penalties give trustees breathing room, but it’s important to confirm your status for future years and to keep records that show whether an exemption applies.
If you are unsure, consider seeking professional advice. A qualified tax advisor can help confirm whether a bare trust exists, whether the $50,000 exemption applies, and whether any filing—T3, Schedule 15 or UHT—is required.
More bare trust questions, answered
Ask MoneySense
I read somewhere bare trusts have to file 2022 UHT returns, but not for 2023 or any future years. Can you clarify?
—Jim
When must you file a UHT return?
A bare trust that owns residential real estate must file a UHT return to claim an exemption from the underused housing tax. Bare trusts that only hold non-residential assets are generally exempt from UHT filing. Deadlines for 2022 and 2023 UHT returns have been adjusted in the past; proposed legislative changes may exempt more trusts going forward, but trustees should monitor developments and file where required until any change is law.
Ask MoneySense
I have been on my children’s bank account for many years. These accounts are totally run by them. The accounts all have under $50,000. Do I need to file?
—Bipin
Accounts under $50,000 and multiple beneficiaries
If you are a trustee on separate accounts for different beneficiaries, each account is generally treated as a separate bare trust. If the fair market value of each trust’s assets stays below $50,000 throughout the year, each may be exempt from T3 filing. Confirm that the assets held meet the types listed in the CRA’s exemption criteria (cash, certain securities, mutual funds, GICs, and similar holdings).
Ask MoneySense
What if you have three different joint bank accounts with a parent that total $50,000? Would that be one trust of $50,000 or three separate trusts under the $50,000 threshold?
—Amy
Multiple joint accounts and the $50,000 threshold
The $50,000 threshold applies to the total fair market value of assets held by a single trust. If the same trustee and beneficiaries are involved across multiple accounts, the CRA could treat the combined assets as one trust for the exemption test. If the combined value exceeds $50,000 at any point during the year, a T3 filing requirement could arise.
Ask MoneySense
Since any income will be reported directly by the beneficiary, I don’t understand the purpose of filing nil T3s. Can someone explain?
—Sherry
Purpose of the new bare trust filing obligations
Although beneficiaries report income from trust property on their personal returns, the government introduced bare trust reporting to obtain better information about beneficial ownership. The initiative aims to improve transparency and help authorities detect tax avoidance, tax evasion and misuse of legal arrangements. The T3 filings provide the CRA with the data needed to verify compliance and to match beneficiaries’ personal tax information with trust ownership.
Other common questions
Ask MoneySense
Is an RESP a bare trust?
—Dean
Are RESPs bare trusts?
No. Registered Education Savings Plans (RESPs) are registered plans with specific tax rules and are not treated as bare trusts for the purpose of T3 filing requirements.
More on taxes
- Can you file multiple years of income taxes together in Canada?
- How to fill out a personal income tax return for 2023
- Canada’s income tax brackets for 2023
- How to file your taxes online in Canada
This article is part of the Ask MoneySense column, where financial experts answer readers’ questions. If you think a bare trust might apply to your situation, check the latest CRA guidance or consult a tax professional to confirm whether you need to file and to ensure ongoing compliance.