Words and Phrases - "bare trust"
CRA Webpage, Enhanced reporting rules for trusts and bare trusts: Frequently asked questions, updated on 14 March 2025
Meaning of trust
1.1. What is a trust? …
Separation of legal and beneficial ownership
Ordinarily, a person who has legal title to a property also has the ability to use, enjoy and “benefit from” the property. Under the law of equity in common law provinces and territories (i.e., outside the Province of Québec), a trust is a relationship in which the legal and beneficial ownership of property are separated, meaning that the person who holds legal title to the property is generally not the same person as the person who is or may be beneficially interested in it.
This separation of legal and beneficial ownership means that in an “ordinary” (non-bare) trust such as a family trust, the trustee exercises control over the trust property and is under a fiduciary duty to act for the benefit of the beneficiaries according to the terms of the trust. The beneficiaries have rights against the trustees to enforce the terms of the trust. …
Trust vs. agency and bare trusts
Trust relationships are distinct from agency relationships, even though both trustees and agents act on behalf of other persons. While a trustee administers property on behalf a beneficiary under a trust, an agent acts on behalf of a principal under an agency agreement. An agent may manage or deal with the principal’s property but does not usually acquire legal title to it. A person who is required to manage and dispose of trust property and who can exercise independent discretionary power over the property is a trustee rather than an agent. The trustee of a bare trust, in contrast, acts as an agent for the beneficiaries when dealing with trust property.
Meaning of "bare trust"
3.1. What is a bare trust?
The term "bare trust" is not defined in the Income Tax Act. However, a bare trust for income tax purposes is a trust arrangement under which the trustee 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.
A trustee can reasonably be considered to act as agent for a beneficiary when the trustee has no significant powers or responsibilities, the trustee can take no action without instructions from that beneficiary and the trustee’s only function is to hold legal title to the property. In order for the trustee to be considered as the agent for all the beneficiaries of a trust, it would generally be necessary for the trust to consult and take instructions from each and every beneficiary with respect to all dealings with all of the trust property.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) | no s. 162(7) penalty for 2023 taxation year of bare trust unless gross negligence | 142 |
| Tax Topics - Income Tax Act - Section 163 - Subsection 163(5) | no s. 163(5) penalty for 2023 taxation year of bare trust unless situation egregious | 191 |
| Tax Topics - Income Tax Act - Section 150 - Subsection 150(1.2) | 180 | |
| Tax Topics - Income Tax Regulations - Regulation 204.2 - Subsection 204.2(1) | 66 | |
| Tax Topics - Income Tax Act - Section 163 - Subsection 163(5) | 126 | |
| Tax Topics - Income Tax Act - Section 150 - Subsection 150(1.2) - Paragraph 150(1.2)(a) | 80 |
Underused Housing Tax Notice UHTN15, Questions and Answers About the Underused Housing Tax, 17 April 2023
Two returns required where 2 registered individuals holding as partners (para. 1.8)
- Where 2 individual citizens are shown on the land registration system as co-owners, but hold in their capacity of members of a partnership, each must file a return.
Bare trusts (paras. 1.12, 1.13)
- “Trust” in para. (b) is interpreted to include a bare trust, being “a trust where the trustee holds legal (titled) ownership of the trust property and is not required to perform any active duty to carry out the trust;” and “trustee” is interpreted to include a bare trustee.
Cheema v. The Queen, 2016 TCC 251 (Informal Procedure), rev'd 2018 FCA 45
Because of lender requirements respecting the taxpayer’s purchase of a new home, on the closing of the purchase, a friend of the taxpayer (Dr. Akbari) acquired an undivided 1% interest in the home, with the taxpayer and his spouse acquiring the remaining undivided 99% interest. On the date of closing, the parties also signed a trust declaration in which Dr. Akbari acknowledged that he was holding the 1% interest in trust for them as beneficial owners and that he would convey that interest on demand (which subsequently occurred to their son with the mortgage lender’s approval).
In finding that the taxpayer was entitled to the new housing rebate (“NHR”) notwithstanding that Dr. Akbari (who never occupied the property) was a legal purchaser, Smith J. stated (at paras 54-55):
The notion of a bare trust as an agency relationship…is well known and well established, at least in the common law jurisdictions. … For tax purposes, a bare trust is considered a non-entity in the sense that a beneficiary as principal, is considered to deal directly with property through the trustee as agent or nominee… .
… Since I have concluded that Dr. Akbari was a bare trustee and that only the Appellant was a “particular individual” for the purposes of subsection 254(2) of the ETA, it necessarily follows that the Appellant was also the person “who was liable under the agreement to pay the consideration” for the purpose of the definition of a “recipient”. The fact that the builder may have had a legal recourse against Dr. Akbari for the consideration changes nothing to the notion that it is the Appellant, as legal and beneficial owner, who was ultimately liable for the consideration under the terms of the Trust Declaration.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Agency | bare trustee is transparent for tax purposes | 155 |
18 February 1994 External T.I. 9334285 F - Bare Trusts
Where a settlor transfers property to a trust having the characteristics according with RC's understanding of a bare trust (the settlor is the sole beneficiary of income and capital during her lifetime, she retains the ability to revoke or amend the trust at any time and has the unfettered ability to deal with the property as she sees fit during her lifetime) but the settlor also stipulates that income and/or capital interest of other beneficiaries, which are contingent during her lifetime, will vest upon her death, the trust will be considered to be a bare trust until her death. Accordingly, she will report all income and losses related to the property and (subject to the availability of any rollover) will have a deemed disposition at fair market value of the property on her death.
De Mond v. R., 99 DTC 893, [1999] 4 CTC 2007 (TCC)
A trust established by the taxpayer (apparently intended to be a revocable living trust for US tax purposes) was found to be a bare trust. After referring inter alia to the definition of Professor Waters of a "bare trust" as "a trust where the trustee or trustees hold property without any further duty to perform except to convey it to the beneficiary or beneficiaries upon demand," as well as to the narrower definition provided by Revenue Canada in Income Tax Technical News No. 7, Lamarre J noted that the taxpayer could cause the trust property to revert to him at any time, could exercise his power to revoke the trust whenever he wanted to, the trustee had no choice but to convey the property to him upon demand and in light of the fact that he was the settlor, the trustee and the beneficiary. Accordingly, losses arising from the trust property (a partnership interest) could be treated by him as personal deductions.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 104 - Subsection 104(1) | taxpayer characterized as playing the role of settlor, trustee and beneficiary of his “own” trust, so that it was a bare trust | 412 |