An update on trust tax return filings for 2025

What is a trust?

A trust is a legal arrangement whereby a settlor transfers assets to a trustee or trustees who hold and manage those assets for a beneficiary or beneficiaries. The trustee is responsible for making decisions for the trust and there may be very specific instructions for how the assets are to be administered, and why and when the assets can be used on behalf of or paid to a beneficiary. 

The most common types of trusts for individuals are testamentary trusts and inter vivos trusts.

• A testamentary trust comes into existence upon the death of an individual. A common example is if a parent or grandparent dies and leaves assets to a minor beneficiary who is too young to receive an inheritance directly. They may also be used for disabled or spendthrift beneficiaries, inheritors with substance abuse issues, or to provide asset protection from a family law perspective. 
• Inter vivos trusts are living trusts set up during an individual’s life. A common example includes a trust to own small business shares to multiply the lifetime capital gains exemption for family members upon the sale of a company. Another example is when money is held in trust for a spouse, child, or grandchild for income splitting purposes. Seniors can also set up special trusts that can act as power of attorney equivalents and bypass probate and estate administration tax. 
  

Related reading: Estate planning for singles—is a trust company the answer?

What is a bare trust?

A bare trust is a type of inter vivos trust that may not appear to be a trust to the untrained eye. Most trusts are created using legal documents like a will or a trust deed. A bare trust can arise simply based on the facts of a situation.

According to the Canada Revenue Agency: 

“In a bare trust, the separation of legal and beneficial ownership means that although trust property is registered under the trustee’s name, the beneficial owner has the rights or attributes of ownership in the property: (a) possession, (b) use, (c) risk and (d) control. Not all of these attributes will be present in every case, and some factors will be given more weight in certain cases. For example, a beneficial owner may not always have possession of the property.”

So, in a case where one person owns an asset (legal ownership) but some or all of it belongs to someone else (beneficial ownership), this may be considered a bare trust. For example:

• Someone may open an investment account for a child or grandchild, but only the parent or grandparent’s name is on the account. 
• A parent may co-sign for their child’s mortgage so they can get approved by the bank and be registered as a 1% owner on the property title—even though the home is considered 100% that of the child.
• A parent might add their child’s name onto their home’s title as a joint owner in an effort to avoid probate (despite the significant risks with this strategy) while the property technically remains 100% that of the parent.
  

These are just a few examples of potential bare trusts.

Filing a T3 trust return

Most trusts need to file an annual tax return called a T3 Trust Income Tax and Information Return. These returns must be filed within 90 days of the trust’s tax year-end, which is December 31 for most trusts. So, March 31 is generally the deadline for most trust returns (March 30 in leap years). If the deadline falls on a weekend, there is an extension to the next business day. 

Income can be taxed in the trust or allocated to the beneficiaries. When the income is allocated to the beneficiaries, it must be paid to them, spent on their behalf, or documented as being owed to them in the future. 

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A beneficiary’s income is reported on a T3 slip (Statement of Trust Income Allocations and Designations). A trust files a T3SUM (Summary of Trust Income Allocations and Designations) with all T3 slips for the trust.

2025 tax filing requirements for trusts and bare trusts

The deadline to file T3 returns with a December 31, 2025 year-end is March 31, 2026. 

Trustees of bare trusts are once again wondering what their obligations are for 2025 and beyond. As it stands, some bare trusts have an exemption from filing, while others may have to file a return. 

Exemptions may apply if:

• A trust owns certain assets valued at under $250,000, including cash, guaranteed investment certificates (GICs), or marketable securities like stocks, bonds, exchange traded funds (ETFs), or mutual funds. This exemption requires all parties to be related to each other. 
• Real estate qualifies as a principal residence.
  

As it stands, the bare trust exemptions have not yet been enacted into law. This ambiguity makes planning difficult for taxpayers and tax professionals alike.

That said, CRA recently clarified with CPA Canada’s director of tax, Ryan Minor, that they will “extend the bare trust administrative filing waiver if legislative changes are not enacted well in advance of the filing deadline.”

It was originally proposed by the Ministry of Finance that bare trusts would have filing requirements for the 2023 tax year; however, last-minute changes meant they were not required to file for either 2023 or 2024.

If CRA makes a direct request to file, a bare trust is required to file, however unlikely. And barring legislative progress on bare trusts, it may be that there is a third exemption year for bare trust tax return filings.

Read more from Ask a Planner:

• What happens if you sell real estate to family for a dollar?
• How to bridge the gap until an inheritance
• What to do when you get laid off
• Why late-career savers need to be careful with RRSPs

About Jason Heath, CFP

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

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