CRA Confirms: Bare Trusts Don't Have to File for 2025 Tax Year
The Canada Revenue Agency (CRA) has provided an update, confirming that bare trusts do not need to file for the 2025 tax year. This announcement comes after the passage of Bill C-15, which includes proposed exemptions for bare trusts from expanded trust reporting requirements, passed second reading in the House of Commons and moved to the committee stage. However, the House is now adjourned until January 26.
Budget 2025, released in November, initially deferred tax filing for bare trusts to 2026. This led to anticipation of communication from the CRA, as Ryan Minor, tax director with CPA Canada in Sudbury, Ont., expressed the need for assurance that bare trust filing isn't required for the 2025 tax year. The expanded trust reporting requirements, introduced to combat tax evasion, mandate detailed beneficial ownership information and annual T3 returns with Schedule 15 for affected trusts, including bare trusts, or else penalties.
Historically, only trusts with taxes payable, capital property disposal, or income or capital distribution were required to file annual trust income tax returns. The 2023 tax year saw the introduction of expanded trust reporting rules, but bare trusts were exempt due to the confusion they generated. In a bare trust, the trustee holds legal title but cannot act without beneficiary direction, common in co-signed mortgages and joint bank accounts.
Bill C-15 includes statutory exceptions that narrow the scope of affected arrangements, as noted by Emily Mantle, founder of Compass CPA in Sudbury, Ont. One example is a parent co-signing a mortgage for a child's principal residence. The proposed legislation also continues to set exemptions for certain listed trusts, including low-value trusts and those holding prescribed asset types, provided conditions are met.
Trusts, including bare trusts, are exempt from filing if the following conditions are met: related trustees and beneficiaries, a property value not exceeding $250,000, and assets consisting of cash, GICs, mutual funds, segregated funds, personal-use property, and securities traded on designated exchanges. This exemption applies to scenarios like an adult child managing a parent's finances.
Bill C-15 also adds exempt life insurance policies (issued by Canadian insurers) to qualifying assets, with FMV determined by cash surrender value, as advocated by STEP Canada and the Conference for Advanced Life Underwriting. However, there's no valuation rule for life insurance in the amendments, as noted by Florence Marino, vice-president of tax and estate planning with Tompkins Insurance Services Ltd.
The proposed legislation includes an exception for securities issued in nominee name, which can lead to bare trust arrangements with securities dealers or custodians as trustees. The Canadian Forum for Financial Markets (CFFiM) has recommended further revisions, suggesting dealers should not be subject to the list of qualifying assets.
Despite the 2023 filing exemption, the CRA received 52,000 trust returns for bare trusts, as reported in July 2024. The Taxpayer's Ombudsperson's review highlighted CRA communication limitations and failures, leading to wasted time and costs for tax practitioners and taxpayers. Recommendations included improved collaboration with stakeholders, communication updates, and the assessment of a unique filing form for bare trusts.
Moving forward, the 2026 tax year may require filing for specific bare trust arrangements, such as nominee or holding arrangements involving rental or investment property, corporate nominee arrangements within related groups, and administrative bare trust structures. Professionals advising clients should identify and assess these arrangements against proposed statutory exceptions.
The trust reporting legislation is complex, and guidance on bare trust filing would be beneficial. The CRA has provided FAQs, but Minor suggests examples of situations where returns are or aren't expected. The CRA's certainty about legislative changes will determine the creation of a specific bare trust return.
