Bare Trust Capital Gains: Who Reports the Sale in Canada?

If property held in a bare trust has been sold, the first question is usually who owes tax on the gain. The name on title may be a parent, a friend or a company, while someone else paid for the property and uses it.

This article explains the general approach CRA describes. Details such as how to calculate the gain depend on your facts, so a lawyer or accountant should confirm your position.

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

Who is the owner for tax purposes?

A trustee generally qualifies as a bare trustee, or agent, when the trustee has no significant powers, cannot act without the beneficiary's instructions, and only holds legal title. The beneficiary is the beneficial owner and the trustee is the legal owner.

CRA uses the term bare trust for an arrangement where the trustee acts as agent for all beneficiaries. Such an arrangement is generally treated as not being a trust for the Act's purposes, with some exceptions. Whether a bare trust exists at all is a question of fact.

The exceptions matter for reporting. Section 150(1.3) of the Income Tax Act says that, for section 150 and s. 204.2 of the Income Tax Regulations, an express trust includes an arrangement where a legal owner holds property for the use or benefit of others and can reasonably be considered to act as their agent. The legal owner is deemed a trustee and the users or beneficiaries are deemed beneficiaries.

Which return reports the gain

For a reportable bare trust, CRA says all income, capital gains and capital losses from the trust property should be reported on the beneficial owner's tax return. The trustee does not report them on the trust's T3.

If a reportable bare trust has to file a T3 for a year, only the fields marked with a check mark need completing and the rest can be left blank. The gain itself still belongs on the beneficial owner's return.

• Gain or loss on the sale, for a reportable bare trust: the beneficial owner's return.
• T3 for a reportable bare trust, where required: only the marked fields.
• Trustee: acts as agent, holding legal title.

For taxation years ending on or after December 31, 2024 and before December 31, 2026, bare trusts need not file a T3 or Schedule 15. How a sale should be reported for those years depends on your facts, so it is worth confirming with a lawyer or accountant.

Reportable bare trusts are subject to the trust reporting rules for taxation years ending on or after December 31, 2026. The first returns are therefore for the 2026 year, due 90 days after year-end, which is March 31, 2027 for a December 31, 2026 year-end. A reportable bare trust that is also a listed trust is not required to file unless it is requested to file.

Once reporting applies, Schedule 15 asks for specified information on all trustees, settlors, beneficiaries and controlling persons: name, address, date of birth for individuals, country of residence and a tax identification number. If a late filing is caught, a bare trust usually has no tax payable, so the likely penalty is $25 a day, with a minimum of $100 and a maximum of $2,500.

Principal residence exemption

If the property sold was a home, ownership for the exemption includes being a beneficial owner of the property, whether alone or jointly with another person. So the beneficial owner behind a bare trust can look to the exemption.

If a trust itself wants to designate a property as its principal residence, no corporation (other than a registered charity) or partnership can have been beneficially interested in the trust. The exemption has further conditions that depend on your facts, so confirm them before you file.

When there may be no bare trust at all

Some arrangements are carved out of the deemed-trust rule. One is where every beneficiary is also a legal owner and no legal owner is a non-beneficiary, such as a joint bank account held by family members for each of them.

Another covers related individuals holding real property that would be the principal residence of one or more of them. CRA says this covers a parent on title to allow a child to obtain a mortgage. An individual who holds real property for the use of a spouse or common-law partner is also excluded if it would be the owner's principal residence.

Other exclusions cover property held solely for a partnership by its partners where a partnership return is filed, property a court order requires the legal owner to hold, and property held by a registered securities dealer or regulated trust company that issues an information return to all beneficiaries.

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

What to do next

• Confirm who paid for the property and who gave the trustee instructions.
• Gather the purchase and sale documents and any written agreement.
• Work out whether the property was a home of the beneficial owner.
• Ask a lawyer or accountant which return should report the sale for your situation.
• Check which tax year the trust's year-end falls in, since the filing rules differ by year.
• Ask a lawyer or accountant to confirm how to calculate the gain.

Frequently asked questions