Capital Gains on Property Held in a Bare Trust in Canada

When property is held by someone else on your behalf, a sale raises a simple question: whose tax return does the gain go on? In a bare trust, the person named on title is not the person who really owns the property for tax purposes.

This article explains who reports the gain, how the principal residence exemption fits in, and why your records matter for the cost base. Every arrangement is different, so confirm your own facts with a lawyer or accountant.

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

Who reports the gain

A bare trustee generally has no significant powers, cannot act without the beneficiary's instructions, and only holds legal title; the beneficiary is the beneficial owner. CRA treats such an arrangement as generally not being a trust for the Income Tax Act, with some exceptions.

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.

The principal residence exemption

If the property is a home, the exemption may matter. CRA's Income Tax Folio says 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.

The exemption has other conditions, including how the home was used, and those are not covered here. Ask your accountant to confirm that you meet them.

One further point applies if the trust itself, rather than the beneficial owner, wants to designate a property as its principal residence. In that case, no corporation (other than a registered charity) or partnership can have been beneficially interested in the trust.

Cost base: why your records matter

The cost base is what you start from when working out a gain or loss. For a reportable bare trust, income, capital gains and capital losses from the trust property should be reported on the beneficial owner's tax return rather than on the trust's T3, so keeping good records of your own is worth the effort. Those records usually show what was paid, when, and by whom.

How the cost base is worked out in a particular case, for example where family members contributed money or where the arrangement started later than the purchase, depends on the facts. An accountant can confirm the figure before you file.

• Purchase agreement and closing documents.
• Proof of who paid the purchase price and costs.
• Records of improvements.
• Any written agreement showing the trustee acts as agent.
• Statements showing who received income from the property.

Reporting rules and exclusions

Separate from your own return, trust reporting rules may apply to the bare trust. CRA says bare trusts are not subject to those rules, and so need not file a T3 or Schedule 15, for taxation years ending on or after December 31, 2024 and before December 31, 2026. Reportable bare trusts are subject to the rules for taxation years ending on or after December 31, 2026.

Some arrangements are excluded from the deemed-trust rule. For example, related individuals holding real property that would be the principal residence of one or more of them are excluded, which CRA says covers a parent on title to allow a child to obtain a mortgage. An individual holding real property for a spouse or common-law partner is also excluded if it would be the owner's principal residence.

What to do next

Before a sale, confirm whether the arrangement is a bare trust. CRA says that is a question of fact and suggests consulting a legal advisor if you are unsure.

• Collect the purchase and payment records.
• Locate any written agreement with the trustee.
• Decide who the beneficial owner is.
• Ask an accountant how the gain, any exemption and the cost base should be reported.
• Keep copies of the advice with your tax records.

Frequently asked questions