By Rebecca Winninger, Senior Associate Lawyer, Lam Family Law*

Updated April 7, 2024 due to CRA changes announced after posting this blog: The CRA announced on March 28, 2024 that bare trusts will be exempt from trust reporting requirements for the 2023 tax year, unless the CRA makes a direct request for these filings . The CRA indicated this decision was made “[i]n recognition that the new reporting requirements for bare trusts have had an unintended impact on Canadians”. It is not yet clear whether bare trusts will be exempt in future years. The CRA says it will work with the Department of Finance in the coming months to “clarify its guidance on this filing requirement”, and will provide further information as it becomes available: Government of Canada, Bare trusts are exempt from trust reporting requirements for 2023 (March 28, 2024).

Original blog post:

Bare trusts have been getting a lot of attention in the media lately, and among legal and accounting professionals. The rules governing which trusts must file a T3 tax return have changed for trusts with a taxation year ending after December 30, 2023. Even bare trusts may now be required to file a T3 return, unless they meet certain exemptions. The Canada Revenue Agency (“CRA”) considers a “bare trust” to be “an arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries”. A bare trustee has “no significant powers or responsibilities” and “can take no action without instructions from” the beneficiary: Government of Canada, New reporting requirements for trusts: T3 returns filed for tax years ending after December 30, 2023 (last updated March 12, 2024).

Commentators have suggested that the new rules may capture informal arrangements where, for example, an aging parent added their adult child to a joint account for convenience, or a parent holds title or joint title to their adult child’s home for mortgage financing reasons. See, for example, Rob Carrick, “A guide to family finances and the new CRA reporting rules for bare trusts – are you in the crosshairs?”, The Globe and Mail (March 25, 2024).

Family lawyers will not likely be in a position to advise their clients about CRA requirements. But it is worthwhile to review the definition and legal test for a bare trust, since the concept is relevant to property issues generally, including in family law, although it does not come up nearly as often as resulting and constructive trusts. It is also important for family lawyers to be aware of the change in reporting requirements so that they can request the appropriate tax disclosure if the issue arises.

The Court of Appeal for Ontario has defined a bare trust as “a trust where the trustee holds property without any active duties to perform other than to convey the trust property to the beneficiaries on demand”. The hallmarks of a bare trust are: (1) the beneficiaries must be able to call for the property when they please; and (2) the trustee must not have (or must no longer have) active duties in respect of the trust property. The duty to guard the property prior to conveyance is passive: Rubner v. Bistricer, 2019 ONCA 733 (CanLII), at para 56.

A bare trustee “has no independent powers, discretions, or responsibilities. Their only responsibility is to carry out the instructions of the principals – the beneficiaries. If the trustee does not have to accept instructions, if the trustee has any significant independent powers or responsibilities, the trustee is not a bare trustee”: Lyttleton v. Lyttleton, 2022 ONSC 5120 (CanLII), at para 26, citing Trident Holdings Ltd. v. Danand Investments Ld., 1988 CanLII 194 (ON CA).

A bare trust is a form of an express trust, and there are four requirements for establishing a valid express trust:

  1. the relevant parties to the trust must have capacity;
  2. there must be certainty of intention to create a trust, certainty of subject-matter, and certainty of objects (the “three certainties”);
  3. the trust must be constituted, meaning the trustees must hold legal title to the property; and
  4. the required formalities must be met: Lyttleton v. Lyttleton, ibid, at para 27, citing Rubner v. Bistricer, 2019 ONCA 733 (CanLII).

Certainty of intention requires that the settlor intended to create a trust, and that the trustee would be required to hold the trust property for the benefit of the beneficiary. This is a question of fact. A settlor need not fully understand the legal concept of trust in order to satisfy this test. Certainty of subject matter requires that the trust property is identifiable. Certainty of objects requires that the beneficiaries be sufficiently described to allow for trust performance: Rubner v. Bistricer, ibid, at paras 52-59.

With regard to the fourth requirement (that the required formalities must be met), a written document is not required to create a bare trust. However, the court requires “cogent evidence of the intention to create a trust from the context of the relevant words or circumstances”: Lyttleton v. Lyttleton, 2022 ONSC 5120 (CanLII), at para 31. Additionally, if the trust includes real property, then a lack of documentation may breach the Statute of Frauds: Do v. Do, 2022 ONSC 6679 (CanLII), at para 36.

In some cases, litigants have pleaded a “bare trust” as an alternative claim, along with resulting and constructive trust. Do v. Do, 2022 ONSC 6679 (CanLII) is an example of a case where the court analyzed all three arguments, and found that there was no trust. In contrast, in Anspor v Neuberger, 2016 ONSC 75 (CanLII), at para 47, the court held that the evidence established “the essential elements for both a bare trust and a purchase money resulting trust.” Neither was a family law case, although Do v. Do was an intergenerational dispute.

In family law, bare trusts have come up in the following contexts:

  • Where a spouse did not hold legal title to property and denied any beneficial interest, but the court found they were the beneficial owner and that the person who did have legal title was a “bare trustee” for the spouse: Lokhandwala v. Khan, 2021 ONSC 7974 (CanLII) [wife successfully claimed that the husband’s mother was holding corporate shares as a bare trustee for the husband and wife].
  • Where a spouse did not hold legal title to property and claimed to be the beneficial owner, but the court found the spouse did not have a beneficial interest and the titled party was not a “bare trustee”: Lyttleton v. Lyttleton, 2022 ONSC 5120 (CanLII) [wife unsuccessfully claimed that the husband’s brother held property as a bare trustee for her and that she was entitled to half the current value of the property, as she did not establish certainty of intention].
  • Where a spouse did have legal title to property, but asserted they held it as a bare trustee with no beneficial interest: Sampath v. Deopersad, 2017 ONSC 7055 (CanLII) [husband unsuccessfully claimed that he held title as bare trustee for his new partner; court held that husband had a beneficial interest in proportion to his financial contribution to the purchase]; & David v. Stiuca, 2024 ONSC 83 (CanLII) [mother and adult son unsuccessfully claimed that the mother and her former husband held title in trust for the son]. See also Li v Liang, 2021 BCSC 862 (CanLII).

*with thanks to Vanessa Lam for her suggestions and edits.