Trust tax compliance has grown more complex in recent years as new disclosure rules have been introduced. Uncertainty around whether some arrangements qualify as bare trusts — and therefore whether trustees must file a trust tax return — has left many taxpayers unsure for the upcoming filing season, especially after two years of temporary relief. Below is an updated summary of the rules and practical guidance as of fall 2025.
What is a trust?
A trust is a legal relationship in which a settlor transfers assets to one or more trustees to hold and manage for the benefit of one or more beneficiaries. Trustees have a legal duty to administer trust property according to the trust terms and applicable law. Trust instructions can be narrow or broad, specifying how and when assets may be used or distributed to beneficiaries.
The most common individual trusts are testamentary trusts and inter vivos trusts:
- Testamentary trusts spring into existence on a person’s death, typically created by a will. They can be used to protect inheritances for minors, provide ongoing support for a beneficiary with disabilities, protect assets from creditors or relationship claims, or manage distributions for beneficiaries who need oversight.
- Inter vivos trusts are established during a person’s lifetime. Common uses include holding business interests to enable tax planning between family members, preserving assets for a spouse or children with income-splitting objectives, or creating estate-planning vehicles that can avoid probate or reduce estate administration taxes for seniors.
Related reading: Estate planning for singles—is a trust company the answer?
What is a bare trust?
A bare trust is a form of inter vivos trust that can be less obvious than a formal trust created by a deed or will. Bare trusts often arise from the facts of an arrangement rather than from formal trust documentation.
The Canada Revenue Agency explains that in a bare trust the legal title is held by the trustee while the beneficial owner retains the key rights of ownership — possession, use, risk and control — although not all attributes must be present in every case. This split between legal and beneficial ownership is the hallmark of a bare trust.
Common examples include:
- An investment account opened in a parent’s name so a child can invest, where the child is the beneficial owner even though the parent’s name appears on the account.
- A parent who co-signs and appears on title as a 1% owner to help a child qualify for a mortgage while the child is the effective 100% owner of the home.
- A homeowner who adds a child to title to attempt to avoid probate even though the home remains effectively owned by the parent.
These scenarios can create a bare trust relationship and may trigger reporting or filing obligations depending on the value and type of assets and whether exemptions apply.
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Filing a T3 trust return
Most trusts are required to file a T3 Trust Income Tax and Information Return each year. The filing deadline is generally 90 days after the trust’s fiscal year-end; for most trusts that use a December 31 year-end, the deadline is March 31 (March 30 in leap years, or the next business day if the deadline falls on a weekend).
Trust income can either be taxed in the trust or allocated to beneficiaries. When income is allocated, it must be paid, spent on behalf of the beneficiary, or recorded as payable to them in the future. Beneficiaries receive T3 slips (Statement of Trust Income Allocations and Designations), and the trust must file a T3SUM, which summarizes all T3 slips issued.
2025 filing rules for trusts and bare trusts
For trusts with a December 31, 2025 year-end, the T3 filing deadline is March 31, 2026. That timeline remains standard for most trusts.
Trustees of arrangements that might be bare trusts have been uncertain whether they must file for 2025. Currently, some bare trusts remain exempt from filing while others may still need to submit returns, depending on the assets involved and the relationship of the parties.
Common exemptions include situations where the trust holds certain qualifying assets with a combined value below $250,000 — for example, cash, GICs, or marketable securities such as stocks, bonds, ETFs or mutual funds — provided all parties are related. Principal residences used as the owner’s home also generally qualify for exemption.
The federal government clarified the filing timeline in the November federal budget, announcing a further deferral: bare trusts are exempt from filing for the 2025 tax year, pushing broader mandatory reporting obligations out to 2026. Earlier proposals had contemplated filing requirements for 2023, but those requirements were deferred for both 2023 and 2024 as well.
It is important to note that if the Canada Revenue Agency makes a specific request for information or directly requires a bare trust to file, the trustee must comply and submit the requested return. Trustees should maintain clear records documenting the nature of the arrangement and the identity of beneficial owners so they can respond quickly if CRA asks for details.
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