09 Oct Bare Trusts: Proposed T3 Filing Requirements for 2025
CRA Proposes T3 Filing Obligations for Certain Bare Trusts
The Government of Canada recently proposed amendments to the Income Tax Act which requires some Bare Trusts to file a T3 Trust Income Tax and Information Return (“T3 Return”) for the 2025 year. These rules were originally announced in previous years, but the filing obligations were delayed as they considered changes to these rules. These proposed amendments are a result of these changes.
As of September 30th, these proposed rules have not been passed into law. We do not anticipate significant changes to these rules before they become law since this is the 3rd iteration of these proposed rules. However, we will still be waiting for CRA to clarify some points of uncertainty once the legislation is finalized.
What is a Bare Trust?
A Bare Trust is where the legal title of an asset is held by a trustee, but a beneficiary has the beneficial ownership of the property. A Bare Trust is effectively a principal-agent relationship, which means the trustee has no independent power, discretion, or responsibility over the property as the beneficiary has control over the trustee’s asset.
Examples of Common Bare Trusts
- As parents age, it is common for them to add their children to the legal title of their real estate. This can reduce the probate on the parent’s passing and ease estate administration. The children don’t really “own” the property until their parents pass away. These arrangements are considered bare trusts and may have a reporting obligation, even if there is no formal document that sets out the arrangement.
- Also, as parents age, children are frequently added to their parents’ bank and investment accounts for the same probate and estate administration reasons. These arrangements are also considered bare trusts and may have a reporting obligation unless they meet the exemption threshold as below.
- Child adds a parent to the title of their real estate to obtain financing.
- In corporate reorganizations, it has been very common to transfer beneficial ownership of real estate from one taxpayer to a company. The legal title is not transferred so that Property Transfer Tax is not payable in BC. This arrangement is a bare trust and now has a reporting obligation.
- Legal title for real estate is held on behalf of a group of owners in a joint venture or partnership.
- An individual acquires a vehicle in their personal name. The vehicle is used by their company, so they report the vehicle as being owned by the company.
Exemptions to Filing Requirements
The following bare trusts may be exempt from requirements to filing a T3 Return:
- Trusts that hold property on behalf of a related beneficiary where that property could be the beneficiary’s principal residence. This might catch several of the situations in our examples above. This exemption does not apply to investment or commercial properties.
- Trusts that hold less than $250,000 FMV in assets throughout the year, where assets are only certain assets (i.e. cash. GIC, marketable securities, etc).
- Trusts that hold less than $50,000 FMV of any assets throughout the year.
- Trusts that exist for less than 3 months in a calendar year.
New Reporting Requirements
In addition to the new requirements to file, detailed information must be provided for all trustees, beneficiaries, settlors, and any person who can exert control or override trustee decisions on the appointment of the trust’s income or capital (e.g., a protector), including:
- Name and address
- Date of birth
- Country/jurisdiction of residence, and
- Taxpayer ID, such as SIN, trust account number, business number, or taxpayer ID used in a foreign jurisdiction
Due Date
The due date for the T3 Return is 90 days after the end of the year-end for the Trust. Most trusts have a December 31st year end, which means that the due date for the 2025 T3 Returns is March 31, 2026.
Penalties for Non-Compliance
The penalties for late filing or non-filing can be significant. For late filing, the penalty is $25 per day late to a maximum of $2,500 per year. In cases of gross negligence, there is a penalty equal to the greater of $2,500 and 5% of the highest fair value of the Trust’s assets.
Action Items
If you may be part of a Bare Trust arrangement, it’s important to determine whether your situation meets an exemption or requires filing.
Clearline’s tax advisors can help you:
- Review your ownership and title arrangements
- Assess whether a Bare Trust exists
- Determine filing requirements and exemptions
- Prepare and file the necessary T3 Return to ensure compliance
Because penalties are steep and rules are evolving, we strongly recommend proactive review before your 2025 filing deadline. Contact us if you have any questions or to learn how Clearline CPA can help.
