2024 was supposed to be the first year that new trust reporting rules would apply to bare trusts in Canada, as previously noted on our blog: see New Bare Trust Reporting Rules Now in Effect. However, on March 28, 2024, within days of the reporting deadline, the Canada Revenue Agency issued an announcement pulling the plug on the new reporting rules for bare trusts, expressing concern that the rules could have an “unintended impact on Canadians”.

Because bare trusts are currently defined broadly in the Income Tax Act, the fear was that many Canadians would be subject to the rules who were simply unaware that their arrangements could be considered a bare trust. For example, the rules would have applied to children holding property temporarily for their aging parents, as noted in Investment Executive’s article Bare trust debacle makes fool of the law-abiding. Under section 150(1.3) of the Act, a bare trust is “an arrangement under which a trust can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property.”

There is now a new development regarding the reporting rules for bare trusts. A few months ago, a number of proposed amendments to the Income Tax Act related to the trust reporting requirements were released. In the new draft legislative amendments, bare trusts are referred to as “deemed trusts.”

The government is also proposing to delay the filing requirements for bare trusts until 2026. If implemented, a T3 and Schedule 15 “Beneficial Ownership Information of a Trust” form will not be required for bare trusts until reporting for the 2025 tax year is due.

Other proposed changes to the legislation specific to bare trusts, or deemed trusts, include:

• A new, more precise definition of a deemed trust;*
• The creation of a new category of deemed trusts which will not be subject to the trust reporting rules, including:
  • Trusts where a deemed beneficiary is also a legal owner of the trust property and there are no legal owners who are not deemed to be beneficiaries: see s. 150(1.31)(a).
  • Trusts where the legal owners of the “trust” property are related to each other and the property would be the principal residence to one or more of the legal owners: see s. 150(1.31)(b). This exception could apply when a parent adds a child to the legal title of their residence for estate planning purposes, or if a parent is added to legal title of a child’s residence, which may be necessary to help the child qualify for a mortgage.
  • Trusts where the legal owner of the trust property holds it for the use or benefit of their spouse or common-law partner, and the property could qualify as the legal owner’s principal residence: see s. 150(1.31(c). This exception would apply if both spouses’ names are on title to the property, but only one spouse is the beneficial owner. 
  • Trusts where a general partner holds the trust property as agent for the partnership, and the partnership is required to file a partnership return for the year: see s. 150(1.31)(d).
  • Trusts where the legal owners hold the trust property pursuant to a court order: see s. 150(1.31)(e).

Since the proposed amendments to the Income Tax Act were released three months ago, there has been no indication from the federal government whether or not the amendments willbe implemented in their current form, or whether we can expect to see further revisions. Once there is news, we will be sure to provide an update here on the blog.

Thank you for reading, and have a great day!

Ian.

*The current text proposed for subsection 150(1.3) describes a “deemed trust” as follows:

Deemed trust

(1.3) For the purpose of this section and section 204.2 of the Income Tax Regulations,

(a) an express trust is deemed to include any arrangement under which

(i) one or more persons (in this subsection and subsection (1.31) referred to as a “legal owner”) have legal ownership of property that is held for the use of, or benefit of, one or more persons or partnerships, and

(ii) 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;

(b) each person that is a legal owner of an arrangement that is described under paragraph (a) is deemed to be a trustee of the trust; and

(c) each person or partnership that has the use or benefit of property under an arrangement that is described under paragraph (a) is deemed to be a beneficiary of the trust.