So-Called Bare Trusts and Trust T3 Reporting; How CRA Over-reach May Cause Problems for Many Families

There has been a fair amount of discussion in the press in recent weeks about the fact that for tax year 2023, so-called “Bare Trusts” must file tax returns for the first time ( FYI, the National Post has provided a very reasonable short explanation of the rules ( We applaud, and concur completely with, National Post’s reporting on this and credit should be given where credit is due.

The one bone we have to pick with the CRA is that they describe these trusts as ‘bare trusts’ when they ought to be using the term ‘undocumented’ or ‘undeclared’ or ‘informal’ trusts instead. A documented/declared/formal trust will be created via a deed of trust that sets out the terms of the trust and the responsibilities of the trustee. It also specifically remedies many of the very harsh obligations on trustees.

The concept of a bare trust for tax law purposes, up until this year anyway, was not an undocumented/undeclared/informal trust; it was something completely different. A bare trust for tax purposes means something that was a simple cash transmission vehicle. For example, someone owns a property, but they put title in the name of a corporation, but that corporation just automatically pays the rent payments on to the actual owner. It is really more akin to an agency arrangement where funds or other benefits were just passed on by someone or some entity without exercising what trustees call ‘discretion’ or decision-making power. Therefore, the use of the expression ‘bare trust’ causes a lot of unnecessary confusion when a more accurate descriptor would be more helpful.

The kind of trusts that need to file are circumstances where an actual relationship of ‘trust’ exists. The law of trusts is venerable and is subject to a completely different set of rules called the ‘laws of equity’ that are different from the common law. However, at the core of trust law is the concept that a person has title (or partial or joint title with someone, more on that in a bit) to an asset (bank account or property of any kind) but they are not intended to benefit from the use or fruits (income) of that property. To have a true trust, there must be a bifurcation of the two types of ownership i.e. title (who’s name is on it) from what is referred to as ‘beneficial ownership’ (effectively, who gets the benefits of the property in terms of use or income).

Our other problem is how the so-called bare trust compliance expansion may do real harm for very little tax compliance good.

The most common form of undeclared/undocumented/informal trust these days is when an elderly person puts one of their children, relative or some other trustworthy person on as joint signatory on their bank account. However, just putting someone on the account does NOT automatically create a trust.

An elderly lady phoned me the other day asking if she had to report her bank account, which her son had been put on as a joint signatory, as a ‘bare trust’. They key question is whether the lady and/or her son were in some way dependent on the other to manage the account and their affairs? In this specific case, the son had been put on the account a number of years ago so that when the lady was out of the country, he could transfer funds to pay her credit card bills for her. However, with the advent of on-line banking, this was no longer necessary, but her son’s name was still on the account. So, is the joint account a ‘bare trust’ for the purpose of the new filing obligations?

The answer from my perspective is that he was an agent for her for a brief period a few years ago. But currently there is no relationship where he takes care of her affairs. This lady then said, “Well should I take him off the account?” To me, given this lady’s age, she may want to have her son on the account just in case something happens, and she is no longer able to manager her affairs in the future. She is fine now and does not need or want help except when she asks. However, things might change, and they often do change quite rapidly before proper arrangements can be made. And then it is too late as people can become incompetent very rapidly and without warning.

At that time, if the lady in question is incapacitated or otherwise unable to manager her affairs, then yes there would be a form of trust created and a tax return would need to be filed under the new rules. But up until that point there is not really any such relationship that would give rise to the existence of an undeclared/undocumented/informal trust. So, the answer for this lady was “well there is no trust now, so there should not be a reporting obligation, but the facts may evolve in the direction of an undeclared/informal trust at some time and then there may be a filing obligation”. However, that may not stop the CRA from assuming there is a trust relationship existing now, given the lady’s age. The best tax advice may be to take her son off so there is no risk of failure to file and the incredible hassle of dealing with the CRA once they make their mind up about something. At the same time, the best practical advice may be to keep him on the account, just in case something does happen to her.

As a result of this massive compliance over-reach by the CRA, the government have created a situation whereby elderly people, who really ought to be putting someone “trust-worthy” onto their accounts just in case, may decide not to because of the risk the CRA may decide that they were not reporting the trust before it actually becomes a trust. This is really not very wonderful. I understand the CRA’s efforts to ensure compliance. However, this seems like a huge increase in the compliance burden for relatively little tax benefit. It also may lead to very unhappy circumstances where elderly people remove their children from joint accounts, only to have this cause enormous hassles for entire family latter on.