An update on 2025 trust tax returns – MoneySense

What is a trust?

A trust is a legal arrangement in which a settlor transfers assets to a trustee or trustees who hold and manage these assets for a beneficiary or beneficiaries. The trustee is responsible for making decisions for the trust and there may be very specific instructions about how the assets are to be managed, 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 arises upon the death of an individual. A common example is when a parent or grandparent dies and leaves assets to a minor beneficiary who is too young to receive an inheritance directly. They can also be used for disabled or spendthrift beneficiaries, heirs with substance abuse problems, or to provide asset protection from a family law perspective.
• Inter vivos trusts are living trusts established during an individual’s lifetime. A common example is a trust that owns small business stock to multiply the lifetime capital gains exemption for family members on the sale of a business. Another example is when money is held in trust for a spouse, child or grandchild for the purpose of income distribution. Seniors can also set up special trusts that can act as equivalents of powers of attorney and avoid estate and inheritance taxes.

Related reading: Estate Planning for Singles: Is a Trust Company the Solution?

What is a bare trust?

A bare trust is a kind of inter vivos trust may not seem confident to the untrained eye. Most trusts are created using legal documents such as a will or a trust deed. A naked trust can arise simply from 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 name of the trustee, the beneficial owner has the rights or characteristics of ownership of the property: (a) possession, (b) use, (c) risk, and (d) control. Not all of these characteristics will be present in all cases, 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 the case where one person owns an asset (legal ownership), but it belongs in whole or in part to someone else (beneficial ownership), this can be considered a bare trust. For example:

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

These are just a few examples of potential bare trusts.

File a T3 trust return

Most trusts must file an annual tax return called a T3 Trust Income Tax and information return. These returns must be filed within 90 days of the end of the trust’s tax year, which for most trusts is December 31. 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 working day.

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

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

2025 Tax Filing Requirements for Trusts and Bare Trusts

The deadline for submitting T3 returns with a year-end on December 31, 2025 is March 31, 2026.

Bare trust managers are once again wondering what their obligations are for 2025 and beyond. As it looks now, some bare-bones trusts have a filing exemptionwhile others may have to file a return.

Exemptions may apply if:

As it stands now, the Exemptions based on bare trust have not yet been implemented into law. This ambiguity makes planning difficult for both taxpayers and tax professionals.

That said, CRA recently clarified to CPA Canada tax director Ryan Minor that they will “extend the administrative filing exemption on bare faith if changes to the law are not implemented well in advance of the filing deadline.”

It was originally proposed by the Treasury Department that bare trusts would have filing requirements for the 2023 tax year; However, last-minute changes meant they didn’t have to apply for 2023 or 2024.

If CRA files a direct filing request, a bare trust is required, however unlikely. And barring legislative progress on bare trusts, there may be a third exemption year for bare trust tax returns.