What Is a Bare Trust in Canada and How Does the CRA Define It?

This answer covers Canadian federal tax law, which applies in every province.

A bare trust is an arrangement where the trustee acts only as an agent for the beneficiary, holding legal title while the beneficiary is the beneficial owner. The Income Tax Act does not define the term, but the CRA uses it for an arrangement where the trustee acts as agent for all beneficiaries, and that arrangement is generally treated as not being a trust for the Act's purposes, with some exceptions.

In practice, the CRA generally looks for a trustee with no significant powers who cannot act without the beneficiary's instructions. Section 150(1.3) of the Income Tax Act treats an arrangement where a legal owner holds property for others and can reasonably be considered their agent as an express trust for section 150 purposes. Exceptions include a joint bank account where every beneficiary is also a legal owner and no legal owner is a non-beneficiary, and a parent on title to allow a child to obtain a mortgage where the property would be the principal residence of one or more of the related legal owners.

Whether a bare trust exists is a question of fact, and the CRA suggests consulting a legal advisor if you are unsure.