Bare Trust Reporting Update 2026: What Canadian Taxpayers Must Know

Bare trusts have become a major compliance focus for CRA.

If you’ve ever held assets in trust — such as investment accounts, corporate shares, or real estate — on behalf of someone else, the term “bare trust” may apply. And in 2026, the reporting obligations tied to bare trusts are more rigorous and risk-laden than ever before.

This post explains:

• What a bare trust is
• When reporting is required
• What CRA expects
• Risks of non-compliance
• Practical steps for family enterprises

Let’s break it down.

 

What Is a Bare Trust?

A bare trust exists when one person (the trustee) holds property only on behalf of another person (the beneficiary), with no active duties or discretion involved.

In a bare trust:

• The trustee has legal title
• The beneficiary has beneficial ownership

The trustee holds but doesn’t control the asset.

Examples include:

• Corporate shareholdings held by a nominee for a family member
• Investment accounts held in trust for a child
• Trust accounts holding foreign assets for ultimate beneficiaries

Bare trusts are popular in family enterprises for confidentiality or administrative convenience — but they now carry explicit reporting obligations.

 

The Reporting Requirement: Why It Matters

Until recently, CRA’s concern with bare trusts focused primarily on transparency and anti-avoidance.

In 2023–2025, CRA significantly heightened scrutiny and request patterns, including:

• Targeting nominees and nominee trusts
• Querying custodial arrangements
• Issuing information requests about beneficial ownership
• Assessing s. 160 and foreign affiliate reporting gaps

While there isn’t a single statutory form titled “Bare Trust Return,” failure to disclose beneficiary information can trigger:

• ITA s. 150 — Duty to File
• ITA s. 162 — Late filing penalties
• ITA s. 163 — Failure to report income
• Part XIV and foreign reporting regimes (T1135/T1134)

In effect, CRA treats undeclared beneficial ownership as a reporting omission, with significant penalties.

 

When Bare Trust Reporting Arises

Bare trust obligations arise in several key situations:

1. T1135 Foreign Property Reporting

If a bare trust holds foreign property and the cost amount > $100,000 CAD, the fair market value threshold applies to the beneficial owner’s share, not the trustee’s nominal title.

This means:

• You cannot avoid T1135 by holding in a bare trust
• CRA may reallocate ownership to the beneficiary for reporting thresholds

 

2. T1134 Foreign Affiliate Reporting

If a bare trust holds a foreign corporation that constitutes a foreign affiliate, the beneficial owners may have reporting obligations on Form T1134, particularly where:

• Canadian ownership crosses 10%
• There is de facto control or economic benefit

 

3. Income Inclusion and Attribution

CRA may attribute income and gains directly to the beneficiary even if the trustee is nominally the owner. This means:

• Rental income
• Dividends
• Capital gains
  may be reportable by the beneficiary, not the trustee.

 

CRA’s Recent Enforcement Focus

CRA’s 2024–2026 compliance programs have explicitly warned about:

• Beneficial ownership disclosure obligations
• Interplay of trust/T1135 reporting
• Foreign assets and opaque trust chains
• Documented nominee arrangements lacking formal agreements

CRA audit teams are now highly likely to:

• Request documentation on trust instruments
• Request evidence of who directs investment decisions
• Reallocate ownership to the beneficial owner for reporting tests

CRA’s administrative position increasingly treats bare trusts as reporting conduits, not tax shelters.

 

Why Beneficial Owner Reporting Is Essential

CRA takes the view that:

Substance matters more than title.

Even when your name is on the asset, if another person benefits economically — CRA will look through the arrangement and hold you responsible for reporting what they should report.

This affects:

• Foreign property thresholds
• Foreign investment reporting (T1135)
• Foreign affiliate reporting (T1134)
• Principal residence exemptions tied to trust-owned real estate
• Attribution rules under ITA s. 75

 

Case Law and CRA Interpretation (Court Trends)

Canadian courts have validated that:

• Trusts that are “nominal in form only” will be treated according to beneficial ownership
• Trustees cannot bury reporting obligations behind legal title
• Beneficial owner analysis is required for foreign reporting thresholds and tax inclusion

While no single Supreme Court case has rewritten bare trust rules, multiple Tax Court decisions since 2022 have confirmed that:

Beneficial owners cannot hide behind nominees to avoid reporting.

This trend is critical because CRA is applying similar principles in modern cryptocurrency, foreign trusts, and nominee investment account audits.

 

Common Bare Trust Scenarios That Trigger Reporting

1. Family Members with a Shared Investment Account

If a parent holds investments “for” a child without reporting the child as the beneficial owner, CRA may:

• Recharacterize the assets
• Inflate foreign property totals on a T1135
• Assess penalties for non-reporting

 

2. Corporate Shareholdings Held Through a Nominee

Companies that hold family shares through nominee trusts may misjudge:

• Who must report T1134 (foreign affiliate)
• Who must include income
• Who must file T1135

CRA treats beneficial owners — not nomineees — as the reporting entity.

 

3. Cross-Border Trusts

If a bare trust holds foreign assets:

• The identity of the beneficial owner may trigger reporting
• Foreign tax credits may apply
• Foreign reporting obligations become beneficiary responsibilities

 

Penalties and Risk

There is no “bare trust penalty” per se — but CRA will assess:

Failure to file penalties under:

• ITA s.162 (late filing penalties)
• ITA s.163 (failure to report income)
  – 10% of unreported income
• Gross negligence penalties (ITA s.163(2))
  – 50% of understated tax
• Foreign reporting penalties (T1135/T1134)
  – T1135 late penalties: $25/day up to $2,500

Mischaracterizing ownership due to bare trust structures can therefore dramatically increase exposure.

 

Country-By-Country Examples

Foreign Investments Held in Bare Trusts

Even if the trustee is Canadian:

• Beneficial owner’s cost goes toward T1135 threshold
• Foreign passive income flows to beneficiary for reporting
• CRA treats T1135 as if the beneficial owner held the asset directly

 

Foreign Private Corp Held in Bare Trust

If the shares are in a bare trust and meet foreign affiliate thresholds:

• Beneficial owners may need to file T1134
• Failure to report may trigger reassessment and penalties
• Corporate disclosures are often required

 

Practical Steps to Manage Bare Trust Risk

1. Identify All Trust Structures

Map out all holding arrangements, including:

• Investment accounts
• Corporate shareholdings
• Foreign assets
• Real estate held on trust

Determine who has beneficial ownership, not just legal title.

 

2. Reconcile with Reporting Thresholds

Identify whether:

• Foreign property cost exceeds $100,000 (T1135)
• Foreign affiliate ownership thresholds are met (T1134)
• Income should be reported by beneficiary

Prepare reporting proactively.

 

3. Document the Arrangement

CRA compliance officers look for:

• Written trust agreements
• Clear delineation of beneficial ownership
• Evidence of who directs investment decisions

Document intentions and legal rights.

 

4. Coordinate with Estate and Succession Planning

Bare trusts interact with:

• Estate freezes
• Holdco structures
• Family trusts
• Succession modes

Failure to align tax reporting with estate documents creates exposure.

 

Common Misunderstandings (and Why They’re Risky)

“Bare trusts aren’t taxable entities.”
Correct — BUT beneficial ownership still triggers reporting obligations.

“Trustee holds title only — so nothing to report.”
CRA looks through superficial title to the beneficiary.

“This is only a foreign tax issue.”
Domestic investments in bare trusts can still trigger reporting (e.g., T3 returns).

“CRA will not audit something so small.”
CRA databases and risk models prioritize beneficial ownership mismatches.

 

Final Thoughts

Bare trust structures are useful tools — but in 2026 they come with real reporting responsibilities.

CRA’s position is clear:

They will look through legal ownership to beneficial ownership for reporting thresholds and tax consequences.

Failure to align reporting with substance exposes families and owner-managers to statutory penalties, gross negligence risk, and foreign reporting obligations.

For disciplined tax planning:

• Identify beneficial owners
• Align reporting to actual economic interest
• Document arrangements
• Address foreign thresholds before year-end

At Shajani CPA, we treat bare trust compliance as a strategic exercise — not a form-filling task.

Tell us your ambitions, and we will guide you there.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2026 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning service.