Andrew Coates, Associate, Gowling (WLG) Canada

In April, I wrote an article about the Canada Revenue Agency’s (the “CRA”) 11^th hour reversal on requiring bare trusts to file T3 returns and Schedule 15s because of the confusion of Canadians and tax professionals alike in answering the question: is this a bare trust? It seems we are getting closer to answering this question based on an announcement from CRA on October 29, 2024 and the Department of Finance’s (“Finance”) introduction of draft legislation on August 12, 2024.

CRA recently confirmed that bare trusts continue to be exempt from filing T3 returns and Schedule 15s for the 2024 taxation year unless receiving a specific request from CRA to do so. Great news…if only it was clear what constitutes a bare trust arrangement.

Finance’s released draft legislation to the Income Tax Act (Canada) in August did help clear up some of the confusion in two ways:

1. New Definition & Exceptions for Trust Reporting

A new definition in subsection 150 would deem the following arrangements (what CRA terms “express trusts”) to be a trust for reporting purposes:

1. one or more persons… have legal ownership of property that is held for the use of, or benefit of, one or more persons or partnerships, and
2. the legal owner can reasonably be considered to act as agent for the persons or partnerships who have the use of, or benefit of, the property.

However, along with the new definition of express trusts is an expanded list of arrangement exceptions (simplified for the purposes of this article) which are exempt from trust reporting if:

• all persons entitled to the benefit of the property (beneficiary) are also legal owners (trustees)
• the property being held is real property and would qualify as a principal residence for one or more of the trustees that are related persons or for the use of, or benefit of, the trustee’s spouse or common-law partner during the year
• the property being held is solely for the benefit of a partnership (excluding limited partners) and each trustee is a partner
• the trustee holds the property pursuant to an order of a court
• the property being held is Canadian resource property held solely for the benefit of publicly-listed corporations, a corporation they control, and certain partnerships of the publicly-listed corporations
• funds are received from the Crown, where the trustees are specific tax-exempt entities described under subsection 149(1) (i.e. registered charities and not-for-profits) and the property is used exclusively for beneficiaries of the same specific tax-exempt entities

2.  Expanded Small Trust Exceptions

The current legislation provides exceptions for small trusts holding assets with an aggregate fair market value (“FMV”) that does not need exceed $50,000 holding money, certain debt obligations, interests in mutual funds or segregated funds, and publicly-listed securities. The proposed legislation expands the small trust exceptions to:

• trusts holding assets with an aggregate FMV that does not exceed $50,000 regardless of the nature of the assets
• trusts with individuals as trustees where each beneficiary is an individual related to each trustee and the aggregate FMV of the trust assets does not exceed $250,000 with assets limited to money, GICs, certain debt obligations, publicly-listed securities, and personal-use property

The new exceptions carve out many of the most common bare trust arrangements that Canadians enter into which, under the current broad legislation, would be reportable:

• jointly-held bank accounts and non-registered investment accounts with a FMV exceeding $50,000;
• parents registered on title to their adult children’s home for mortgage financing purposes only; and
• only one spouse registered on title to a home in which both reside as their principal residence

 Finance’s proposed legislation would apply to bare trust arrangements for the tax year ending December 30, 2025. If adopted, this would provide an additional year for taxpayers to determine is this a bare trust and get their arrangements and reporting obligations in order.