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Bare Trusts Tax Consequences: Canadian Tax Lawyer Guidance

Published: March 5, 2021

Last Updated: June 11, 2021

Introduction: Bare Trusts & Canadian Tax Law

This article aims to provide tax advice to Canadian taxpayers on the concept of a bare trust. In particular, it discusses three key topics concerning a bare-trust relationship—namely, its nature, its relevance for Canadian tax purposes, and the indicia proving its existence. This article concludes by offering pro tax tips to Canadian taxpayers who have created or who seek to create a bare trust.

What is a Bare Trust?

The concept of a trust finds its roots in equity, which distinguishes legal ownership from beneficial ownership. A person legally owns a property if his or her name is on title, yet the beneficial owner is “the real owner of property even though it is in someone else’s name.”

A trust is essentially a relationship between a trustee, the trust property, and a beneficiary. In particular, it is a relationship whereby the trustee holds legal title to the trust property and manages the property for the benefit of the beneficiary.

A bare trust is a trust in which the trustee has no obligation other than to dispose of the trust property in compliance with the beneficiary’s directions. In other words, under a bare trust, the beneficiary retains complete control over the trustee’s dealings with the trust property.

As such, a bare trust is primarily an agency relationship whereby the bare trustee holds title to property as the beneficiary’s agent.  An agency relationship exists where parties agree that one (the agent) shall act in accordance with the directions of the other (the principal). Hence, a bare trust arises when parties agree that one (the bare trustee) shall act in accordance with the directions of the other (the beneficiary) with respect to a property (the trust property). The trust property is, of course, the property over which the beneficiary enjoys true ownership but to which the bare trustee holds legal title.

How Is a Bare Trust Taxed in Canada?

Because the beneficiary retains beneficial ownership over any property subject to a bare-trust relationship, Canada’s income-tax law ignores the bare trustee. For example, if a person retains beneficial ownership while transferring legal title to a bare trustee, the transfer does not constitute a disposition. As a result, by directing a bare trustee to acquire and deal with his property, the beneficiary does not thereby trigger a taxable event for himself. And if, in accordance with the beneficiary’s directions, the bare trustee should sell that property to a third party, the transaction is taxed as though the beneficiary dealt directly with the third party.

The same thing generally holds true for GST/HST purposes.  That is, courts will generally ignore a bare trust when applying the provisions of Canada’s Excise Tax Act. But there is at least one exception: A bare trustee isn’t ignored for the purposes of the GST/HST New Housing Rebate. In The Queen v Cheema (2018 FCA 45), a majority of the Federal Court of Appeal held that a new-home purchaser cannot claim the GST/HST New Housing Rebate if a co-signer of the purchase agreement doesn’t also occupy the home—even if the co-signer acted as a bare trustee for the purchaser’s benefit.

As a result, while Canadian tax law has generally ignored bare trusts, this treatment isn’t consistent across the board. So, before entering a bare-trust relationship, you should first confirm that the bare trust will indeed bring about the tax consequences that you seek. Consult one of our expert Canadian tax lawyers today for tax guidance concerning bare trusts.

How Do You Determine Whether a Bare Trust has been Created?

Because a bare trust is essentially a principal-agent relationship in which the agent holds legal title to property that the principal beneficially owns, the principles of agency law govern a bare-trust relationship. In other words, the principles that discern whether parties have entered an agency relationship also bear upon whether parties have created a bare trust.

An agency relationship may emerge in one of two ways: First, it may arise by agreement between the principal and agent. Their agreement may be express, typically by way of a written agreement, or it may be implied by the conduct or situation of the parties. Second, an agency relationship may retrospectively emerge by the principal’s subsequent ratification of acts done on his behalf.

The essential ingredients of an agency relationship are that (i) the principal and agent must both consent, (ii) the principal has given the agent the authority to affect the principal’s legal position, and (iii) the principal retains control over the agent’s actions.  The parties need not have reduced their agency agreement to writing. If no written agency agreement exists, the parties’ conduct determines whether they intended to create an agency relationship.

The key feature is the level of control that the alleged principal exerts over the alleged agent. Notably, in an agency relationship, the principal retains beneficial ownership of any property subject to that relationship. Hence, when an agency relationship calls for the agent to acquire the principal’s property, a bare trust potentially arises: If the agent acquires the principal’s property with the sole responsibility of carrying out the principal’s instructions, the agent holds that property as a bare trustee while the principal enjoys the rights associated with beneficial ownership—that is, the rights to use, possess, dispose of, earn income from, and destroy the property. If, on the other hand, the alleged agent need not accept the principal’s instructions on dealing in the property, or if the alleged agent has significant independent power, discretion, responsibility over the property, he is neither an agent nor a bare trustee.

Hence, if the parties have not reduced their agreement to writing, a number of factors speak to whether the parties have created a bare trust with respect to a property. For example, does the purported bare trustee deal with the alleged trust property without the purported beneficiary’s direction or permission? Does the purported bare trustee derive any personal benefit from the alleged trust property?

This determination calls for a detailed analysis of the parties’ arrangement in light of the principles governing agency and bare-trust relationships. So, if you want to create a bare trust or you seek to confirm whether you hold property as a bare trustee, please consult one of our experienced Canadian tax lawyers.

Pro Tax Tips: The Importance of a Written Bare-Trust Agreement

As mentioned above, the creation of a bare trust does not require a written agreement. The parties’ conduct is what determines whether they intended to create a bare trust.

That said, if parties intend to create a bare trust, they should execute a written bare-trust agreement. Likewise, parties who have already entered an oral bare-trust agreement should memorialize their pre-existing bare-trust relationship by executing a written bare-trust agreement. While the bare-trust agreement is itself distinct from the document recording that agreement, the Canada Revenue Agency will likely dispute the existence of a bare trust without documentary evidence.

Not only can our top Canadian tax lawyers provide tax guidance about tax-planning opportunities involving bare trusts, but they can also draft a bare-trust agreement containing the clauses that you require.


"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."


Yes. If a trustee is engaged in commercial activities that it would carry on its own name, the trustee would have to register for HST/GST purposes unless it meets one of the exceptions from registration. Some cases where this applies include a trustee earning trustee fees or fees for managing the trust property as an agent for the beneficial owners.

A principal-agent relationship is an arrangement where one party legally appoints another to act on its behalf. In this type of relationship, the agent acts on behalf of the principal, and their relationship is often called an “agency.” The law of the agency establishes the guidelines for the relationship.

Yes. A currently registered bare trust accounting for HST/GST regarding supplies that are related to the property held in a bare trust can apply for a cancellation of their registration. If a cancellation were made, it would be effective on the same day that the owner filed the cancellation.

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