Update on New Trust Reporting Rules

We have been writing about the new trust reporting rules for a number of years now. Previous articles published on November 3, 2020 (New Trust Reporting and Disclosure Requirements), March 11, 2022 (Delayed Implementation of New Trust Reporting and Disclosure Requirements), and January 2024 (Important Reminder of New Trust Reporting Requirements) detailed the drastic changes to the reporting requirements for trusts, including the new reporting requirements for “bare trust” arrangements.

Implementation of a significant component of these new rules has been postponed, as bare trust arrangements were exempted from the new reporting regime for the 2023 and 2024 reporting periods. The recent 2025 budget further exempted bare trusts from the reporting requirements for the 2025 taxation year.

However, the requirement has not been repealed, and the 2025 budget confirmed the government’s intention to proceed with legislation proposed in August 2025 implementing the rules requiring bare trust reporting for the 2026 calendar year.  This article will explore some of the proposed changes contained in the August 2025 proposals aimed at clarifying and easing the new tax filing burden on trusts.

Deemed Trusts

As discussed in previous articles, the most significant upcoming change for trust reporting will be the requirement for “bare trust” arrangements to file a T3 return as an information reporting form. However, in many instances, it may be difficult to determine what might qualify as a “bare trust” arrangement.

The proposed draft amendments essentially define a bare trust arrangement requiring tax reporting as one where one or more persons have legal ownership of property held for the use or benefit of one or more beneficiaries, and the legal owner can reasonably be considered to act as agent for the beneficial owners of the property. Only bare trust arrangements meeting this definition are deemed trusts falling under the new reporting regime.

While it is helpful to have a definition for what types of bare trusts are deemed to fall under the new T3 reporting regime, a broad range of common situations can still be caught.

Specific Bare Trust Exclusions

Important exclusions for specific arrangements that would otherwise be deemed to be bare trust arrangements are also provided by the proposed amendments, further narrowing the scope. For example, some of these exemptions include circumstances where:

• All legal owners are also beneficiaries, and vice versa (e.g., joint bank account arrangements among family members);
• Legal owners are related individuals and the property is real property that could be designated as a principal residence of at least one of them (e.g., parent on title for a child’s home for mortgage purposes);
• The legal owner is an individual, the property is real property used by their spouse or common-law partner, and could be designated as the legal owner’s principal residence (e.g., spouses jointly occupy a home but only one is on title);
• Each legal owner is a partner (other than a limited partner) holding property solely for the use or benefit of the partnership, and a partnership information return is filed;
• A legal owner holds property as a result of a court order;
• Canadian resource property is held for the use or benefit of one or more publicly listed companies; or
• A non-profit organization holds funds that it received from federal or provincial governments for the benefit of other non-profit organizations.

Enhanced General Exemptions for Trust Reporting

In addition to the above exclusions for specific bare trust arrangements, the draft proposal also narrows the filing and reporting obligations for all trust arrangements.

Trusts that are “inactive” for the year may qualify for one of the following exemptions from filing a T3 return and/or the expanded information reporting requirements.  

• Small Trust Exception: Trusts holding property with a total fair market value not exceeding $50,000 throughout the year are exempt, regardless of the type of property held (prior to the proposed changes, the trust could only qualify if it held only certain types of property, as described under the “Related Party Trust Exception” below).
• Related Party Trust Exception: Trusts where each trustee and each beneficiary is an individual, all beneficiaries are related to each trustee, and the trust holds only certain types of property (e.g., money, GICs, listed securities, mutual funds, personal-use property) with a total value not exceeding $250,000 throughout the year.
• Regulated Trust Accounts: Includes certain client-specific trust accounts (e.g., lawyer trust accounts) holding only cash or certain deposits/GICs not exceeding $250,000.
• Statutory Trusts: Trusts established to comply with a federal or provincial statute (e.g., statutorily created trust relationships of bankruptcy trustees or provincial guardians) are exempt, even if the statute does not explicitly require property to be held in trust.

To qualify as inactive, a trust must:

• not have any taxable income or taxes payable; 
• not have disposed of or be deemed to have disposed of capital property;
• not be a deemed resident, revocable, or reversionary trust;
• not provided a benefit or allocation to one or more beneficiaries during the year; and
• has not been requested to file by the CRA.

In many instances bare trust arrangements are likely to be considered inactive and therefore may be able to qualify for the above-mentioned general exemptions from filing in addition to the specific exclusions for bare trusts mentioned above.

Other trusts that are not considered inactive but meet the general exemptions above, would be alleviated from the expanded information reporting requirements but would still be required to file a T3 trust return to report activity during the year.

Conclusion

Although implementation of the new bare trust reporting rules has been postponed to 2026, taxpayers should use the opportunity to revisit their organization charts and financial arrangements.  In addition to identifying any trust, bare trust, or other informal trust arrangements that may require filings next year, consideration should be given to whether any changes may be desirable to fall into an exception to the reporting regime before the new year.

While some clarifications and exemptions have been proposed, it is important to be aware that substantial uncertainty remains and the new rules will result in a significantly increased compliance burden when implemented.

As there are significant penalties for non-compliance, clients are encouraged to contact their Shimmerman Penn LLP advisor as soon as possible for further advice and planning with respect to the incoming requirements.