Bare Trusts in Ontario and the New CRA Reporting Rules: What You Need to Know

The phrase bare trust may not mean anything to you — but you might be in one without knowing it. If a parent is on title to an adult child's property to help them qualify for a mortgage, or if an adult child is on a parent's bank account for convenience, a bare trust arrangement may exist. And as of writing, the Canada Revenue Agency has significantly expanded reporting obligations for these arrangements.

This article explains what a bare trust is, why it matters in the context of estate planning, and what the new T3 filing rules mean — framed as of writing, because this area is actively evolving. Verify current CRA requirements with a tax professional before filing or deciding not to file.

What Is a Bare Trust?

A bare trust is the simplest form of trust. In a bare trust:

• One person (the nominee or bare trustee) holds legal title to property
• Another person (the beneficial owner) is the true economic owner — they enjoy the property, bear its gains and losses, and can direct the trustee to deal with it

The bare trustee holds "naked" legal title with no discretion, no independent powers, and no duty beyond following the beneficial owner's instructions.

Common examples of bare trust arrangements:

• Parent on child's property: a parent is added to a child's title or mortgage for credit qualification purposes, but the child is the true owner
• Adult child on parent's account: an aging parent adds an adult child as a joint account holder for estate administration convenience, but the parent owns the funds
• Nominee corporations: a corporation holds title to real estate on behalf of the true owners
• Agent arrangements: a person holds an investment account in their name for the benefit of someone else

Why This Matters for Estate Planning

Many Ontarians enter bare trust arrangements informally, often not even recognizing the legal relationship. This creates issues:

• Who owns the property for tax purposes? Capital gains, rental income, and other tax consequences generally belong to the beneficial owner, not the nominee. The nominee's name on title is irrelevant to CRA.
• What happens when the nominee dies? If a parent is on title to a child's home and the parent dies, that interest passes through the parent's estate — triggering probate, potential estate administration tax, and delay — even though the child was always the true owner. An unrecorded bare trust arrangement can cause exactly this problem.
• What happens on a relationship breakdown? A nominee's spouse may try to claim an interest in the nominee-held property.

Clear documentation — a Declaration of Trust or Bare Trust Agreement — is essential to protect the beneficial owner and establish the arrangement for CRA purposes.

The New CRA T3 Trust Return Reporting Requirements

In recent years, CRA substantially expanded the reporting requirements for trusts, including bare trusts, under the Income Tax Act. As of writing, the rules require many trusts — including bare trusts — to file a T3 annual return and disclose detailed information about:

• The trustee(s)
• The beneficiaries
• The settlor(s) of the trust
• Any person who has the ability to exert influence over trustee decisions

The purpose of these rules is transparency: CRA wants to know who actually benefits from arrangements where legal ownership is separated from beneficial ownership.

Important Caution: Verify Before Filing (or Not Filing)

The application of these rules to bare trusts has been subject to significant back-and-forth. CRA provided administrative relief in certain years — at one point temporarily exempting bare trusts from filing — but the exemptions and requirements have changed. As of writing, you should verify the current filing obligations for your specific arrangement with a tax professional or by consulting current CRA guidance. Do not assume that an exemption you heard about previously still applies.

Penalties for non-compliance with trust reporting rules can be significant.

Do You Have a Bare Trust?

Ask yourself:

• Is your name on a title, account, or other property that you do not economically own (or vice versa)?
• Did you add someone to a property or account as a matter of convenience — for mortgage qualification, estate administration, or to have a backup signatory?
• Are you holding an asset "in trust" for someone under a verbal or informal arrangement?

If the answer to any of these is yes, you may have a bare trust arrangement that needs to be documented and potentially reported.

How to Formalize a Bare Trust Arrangement

A Declaration of Trust or Bare Trust Agreement is a simple document that records:

• Who holds legal title (the trustee/nominee)
• Who is the beneficial owner
• The property covered by the arrangement
• The nominee's obligation to follow the beneficial owner's directions

This document protects all parties, establishes the tax treatment clearly, and prevents title complications at death or on a relationship breakdown. It should be drafted by a lawyer.

Bare Trusts and Estate Planning

If you are estate planning and you hold property in your name for someone else, tell your estate lawyer. Your will may need to address the bare trust (or simply acknowledge that the property is not part of your estate). Alternatively, the arrangement may be worth formally unwinding before your estate plan is finalized.

Frequently asked questions