All About Estates

Bare trusts – we have to do what now?

On February 4, 2022, exactly 1,438 days after the original draft legislation was introduced in the 2018 Federal Budget, the Department of Finance (Finance) released revised draft legislation[1] for beneficial ownership reporting for trusts.

This revised draft legislation contained two significant changes:

  • Effective date was changed to taxation years that end after December 30, 2022; and
  • Bare trusts[2] and arrangements are now specifically included

Given that the original draft legislation was not law, the new effective date in the revised draft legislation was a welcomed change.

The inclusion of the bare trusts and arrangements on the other hand was not a welcomed change.

Beneficial ownership reporting – a brief history

Without going back to the very beginning, in October 2014 the Financial Action Task Force (FATF) authored a report[3] providing guidance related to its recommendations on transparency and beneficial ownership to create a better system to determine the true ownership of corporations and their assets. The report stated that countries should take measures to prevent the misuse of corporate and other structures or arrangements for money laundering and terrorist financing by ensuring that such legal arrangements are sufficiently transparent. In particular, countries should ensure that there is adequate, accurate and timely information on express trusts (including information on the settlor, the trustee and the beneficiaries) that can be obtained or accessed in a timely fashion by competent authorities.

In response to this report, the Liberal government introduced the beneficial ownership reporting rules in the 2018 Federal budget. The initial draft legislation did not specifically include bare trusts, which was interpreted by many tax professionals as not being subject to the beneficial ownership reporting.

What was Finance thinking?

So why did Finance reintroduce the draft legislation with the inclusion of bare trusts?  I think the real question is why didn’t Finance include bare trusts in the initial draft legislation.  If the purpose of the reporting is to provide beneficial ownership information to create transparency in the fight against money laundering and terrorist financing, then including bare trusts seems like a logical conclusion.

The problem

The problem with including bare trusts into the beneficial ownership reporting rules is that many individuals may have inadvertently created a bare trust. Many businesses use bare trusts to hold legal title of real property while the beneficial ownership rests elsewhere.  Even the opening of a bank account on behalf of your minor child to deposit their birthday money could be interpreted as a bare trust.  There are numerous examples of legitimate and innocent bare trusts.  If Finance keeps the inclusion of bare trusts without better defining its scope, then unknowing individuals could be faced with penalties for not filing a T3 Trust Income Tax and Information Return and providing the beneficial ownership information to the Canada Revenue Agency.

An imperfect exception

Although including bare trusts into the beneficial ownership reporting regime may make sense, I don’t expect that the Government of Canada is prepared to devote significant resources to investigating the potential underground money laundering birthday-money circuit.  At least, the original draft legislation contains an exception for trusts that hold assets with a total fair market value not exceeding $50,000.  This exception is applicable where the only assets held by the trust are one or more of:

  • cash,
  • certain government debt obligations,
  • a share, debt obligation or right listed on a designated stock exchange,
  • a share of the capital stock of a mutual fund corporation,
  • a unit of a mutual fund trust,
  • an interest in a related segregated fund (within the meaning assigned by paragraph 138.1(1)(a)), and
  • an interest, as a beneficiary under a trust, that is listed on a designated stock exchange.

This exception will curtail the need for most unsuspecting parents to have to report their children’s beneficial ownership of their birthday money; but be careful when that financially astute aunt or uncle gets creative with their niece or nephews’ gift.  When my daughter turned 10 years old, her uncle (who is a CPA) gave her 10 shares in Walt Disney for her birthday.  Those shares, beneficially owned by my daughter, where held in my name. The value of those shares is easily below the $50,000 threshold, but the shares are not listed on a designated stock exchange.  As a result, we would not meet the exception and would be required to file a T3 return and report to CRA.


[1]  Reporting Requirements for Trusts –

[2] A bare trust is a specific kind of trust where the trustees hold legal title to trust property for the sole benefit of the beneficiaries, and the trustees have little to no active duties with respect to the trust property, other than executing the instructions of the beneficiaries.


About John Oakey
National Tax Director for Baker Tilly Canada. John has extensive experience with Canadian corporate and personal income taxes with specialization in the areas of corporate reorganizations, estate planning, succession planning and tax compliance. He also has significant experience dealing with GST/HST issues and U.S. citizen cross-border tax reporting issues.


    • John Oakey

      March 9, 2022 - 3:00 pm

      Thanks to Jamie Golombek for pointing out that the Walt Disney Company shares are listed on both the NASDAQ and NYE, and that both exchanges have been designated by the Minister of Finance under subsection 262(1) of the Income Tax Act as designated stock exchanges Check out this link for a complete list of designated stock exchanges . It looks like I can avoid filing a trust return and reporting after all.

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