Get ready for a tax twist! The CRA has confirmed that bare trusts can breathe easy for now, but the story doesn't end there.
In a recent update, the CRA announced that bare trusts won't need to file for the 2025 tax year. This news comes after Bill C-15, which includes proposed exemptions for these trusts, passed its second reading and is now under review by a committee. However, the House won't reconvene until January 26, leaving some questions unanswered.
The 2025 Budget, released last November, pushed the filing requirements for bare trusts to 2026. Ryan Minor, a tax director at CPA Canada, explained that they were expecting clarification from the CRA, as the budget confirmed the deferral.
So, what's all the fuss about? The expanded trust reporting rules, introduced to combat tax evasion, require detailed beneficial ownership information. Typically, only trusts with taxes payable or those that have disposed of capital property or distributed income needed to file an annual return. But with the new rules, affected trusts, including bare trusts, must file an annual T3 return and Schedule 15 on time or face penalties.
Here's where it gets controversial: the expanded rules were effective for the 2023 tax year, but bare trusts have been exempt from filing due to the confusion they caused. In a bare trust arrangement, the trustee holds legal title but can't act without all beneficiaries' consent. This could include co-signed mortgages or joint bank accounts, and many taxpayers might not even realize they have such an arrangement.
Bill C-15 includes several exceptions that narrow the scope of affected arrangements. For example, if a parent is on the title of a property solely to co-sign a mortgage for their child's principal residence, this scenario is expressly exempted from the enhanced trust reporting rules.
The proposed legislation also sets out exemptions for certain listed trusts, including those with low values or specific asset types. Trusts in existence for less than three months or holding assets with a fair market value of $50,000 or less are exempt from the annual filing requirement.
Under the proposed rules, trusts, including bare trusts, are exempt from filing if the trustees and beneficiaries are related, the property's fair market value doesn't exceed $250,000, and the trust's assets consist of specific types, such as cash, GICs, mutual funds, and securities traded on designated exchanges.
And this is the part most people miss: the exemption would apply when an adult child is named as a joint owner of a parent's bank account to help manage their finances.
Bill C-15 also adds exempt life insurance policies, issued by a Canadian insurer, to the list of qualifying assets, with the fair market value determined by the policy's cash surrender value. However, there's a curious absence of a valuation rule for life insurance relating to the $50,000 blanket exemption.
Another exception is proposed for securities issued in a nominee's name, which creates a bare trust arrangement with the securities dealer or custodian as trustee. In this case, the trust's income and gains must be reported to the beneficiaries.
The Canadian Forum for Financial Markets, which advocated for this exception, argues that it reduces compliance costs and the number of filings. They've also recommended further legislative revisions, such as exempting dealers from the list of qualifying assets, as there's no rationale for limiting the properties held in a bare trust arrangement to be exempt from reporting.
As the bill progresses through Parliament, it's important to watch for further refinements. Not all issues raised during consultations seem to be fully addressed in the current draft, according to Emily Mantle, founder of Compass CPA.
The direction is clear: the government aims to maintain expanded transparency while introducing more precise and targeted carveouts.
For the 2026 tax year, Mantle provided examples of bare trust arrangements that may still be required to file: nominee or holding arrangements for rental or investment properties where an individual or corporation holds legal title for another, corporate nominee arrangements within related groups, and administrative bare trust structures where professionals hold assets in name only for clients.
The trust reporting legislation is complex, and there's an educational component to prepare for the 2026 filing. Minor suggested that guidance on bare trust filing would be beneficial, with examples of situations where returns are not expected and common scenarios where they are.
The CRA has provided frequently asked questions about bare trust reporting, but widespread confusion remains. The legislation was burdensome, and its concept of bare trust was too broad, leading to the Taxpayer's Ombudsperson reviewing the CRA's administration of the legislation.
Despite the 2023 filing exemption, the CRA reported that 52,000 trust returns were filed for bare trusts that year. The review outlined communication failures and limitations, resulting in wasted time, effort, and costs for tax practitioners and taxpayers.
Among the recommendations was for the CRA to assess its collaboration with stakeholders when legislative amendments are enacted, work more closely with Finance on proposals that impact taxpayer compliance costs, and improve communication with taxpayers through tax tips and news releases. The Taxpayer's Ombudsperson also suggested the CRA consider a unique filing form for bare trusts to simplify the process.
Minor argued that the filing questions for taxable trusts are irrelevant for bare trusts and suggested a simplified form to ease the compliance burden.
The CRA has indicated that once the proposed legislative changes are finalized, they will revisit the possibility of creating a specific return for bare trusts.
So, what do you think? Are these proposed changes a step in the right direction, or do they still leave room for improvement? We'd love to hear your thoughts in the comments!
