Administrative Reporting Relief for Lawyers’ Trust Accounts: 2023 and 2024 Tax Years

Via email: Cathy.Hawara@cra-arc.gc.ca

Cathy Hawara
Assistant Commissioner | Sous-commissaire
Compliance Programs Branch | Direction générale des programmes d’observation
Canada Revenue Agency
344 Slater Street
Ottawa, Ontario K1A 0L5

Dear Ms. Hawara:

Re: Administrative Reporting Exemption for Lawyers’ Trust Accounts for the 2023 and 2024 Tax Years

We write on behalf of the Wills, Estates and Trusts Section and the Taxation Law Section of the Canadian Bar Association (CBA) in response to a request on the part of the Canada Revenue Agency (CRA) on the administrative reporting exemption for lawyers’ trust accounts for the 2023 and 2024 tax years.

The CBA is a national association of 40,000 members, including lawyers, notaries, academics and students across Canada, with a mandate to seek improvements in the law and the administration of justice.

The CBA Sections appreciate the opportunity to share feedback on this issue. We would be pleased to discuss it in greater detail.

The CBA Sections take the position that professional trust accounts maintained by legal professionals (e.g., lawyers and paralegals) are bare trusts for income tax purposes and generally under the common law. For convenience, these professional trust accounts will be hereinafter referred to as “Lawyers’ Trust Accounts”.

As a result, all Lawyers’ Trust Accounts, absent an unconventional arrangement deviating from the legal characteristics of a bare trust, are exempt from the trust reporting requirements for the 2023 and 2024 tax years.

1. On October 29, 2024, the Canada Revenue Agency (CRA) published on its website a press release stating that

The CRA will not require bare trusts to file a T3 Income Tax and Information Return (T3 return), including Schedule 15 (Beneficial Ownership Information of a Trust) for the 2024 tax year, unless the CRA makes a direct request for these filings. This is a continuation of the exemption from the trust reporting requirements that was issued for bare trusts for the 2023 tax year.¹ (the Administrative Reporting Exemption)

2. This was reiterated by the CRA on March 3, 2025, in the “Reminder: Trust Reporting for the 2024 tax year”.
3. It is the CBA’s position that the Administrative Reporting Exemption would apply to all types of conventional Lawyers’ Trust Accounts for the 2023 and 2024 tax years.
4. Based on this position, the CBA intends to advise its members that their professional trust accounts should be considered bare trusts and thus qualify for the Administrative Reporting Exemption, unless they have made unconventional arrangements with their clients that deviate from a bare trust arrangement.
5. The following explains the reasons supporting the CBA’s position and advice above.

Legal Definition of a Bare Trust and the Related CRA Administrative View

6. The current subsection 150(1.3) of the Income Tax Act states: “For the purposes of this section, a trust includes an arrangement under which a trust 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.”  Under proposed amendments to subsection 150(1.3), a trust is considered to include any arrangement under which one or more persons have legal ownership of property held for the use of, or benefit of, one or more other persons or partnerships, and the legal owner can reasonably be considered to act as agent for such persons or partnerships.
7. In Robinson v. R, De Mond v. R., and subsequent decisions,² the courts have defined a trust to be a bare trust if the trustee is acting no differently than an agent of the beneficiary. The typical characteristics of an agency-like trust include:
   1. The trustee owes a duty of obedience to the beneficiary, i.e., taking no action without instructions from the beneficiary.
   2. The trustee has no significant powers or responsibilities over the trust property.
   3. The trustee’s only function is to hold legal title to the property for the absolute benefit of the beneficiaries.
8. The CRA’s administrative definition of a bare trust follows this case-law definition:

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.

A common example of a situation where a bare trust arrangement can exist is when, for privacy reasons, a property developer establishes a bare trust arrangement that will hold registered title to real property, while the developer retains beneficial ownership.³

Lawyers’ Trust Accounts Meet the Legal Definition of a Bare Trust

9. All types of Lawyers’ Trust Accounts—be it a general trust account or a specific trust account maintained separately for a specific client—bear the same legal characteristics of a bare trust as follows:
   1. The legal professional (the trustee) owes a duty of obedience to their client for whom the trust account is maintained. The legal professional can take no action without instructions from the client.
   2. The legal professional (the trustee) has no significant powers or responsibilities over the trust property.
   3. The only trustee function of the legal professional is to hold legal title to the property for the absolute benefit of the client.
10. Lawyers’ Trust Accounts are clearly arrangements under which the legal professional can reasonably be considered to act as agent for its clients.
11. Therefore, unless a legal professional makes an unconventional arrangement with a client that deviates from the bare-trust characteristics as discussed above, all types of Lawyers’ Trust Accounts would be considered bare trusts. Therefore, conventional Lawyers’ Trust Accounts qualify for the CRA’s Administrative Reporting Exemption for the 2023 and 2024 tax years.
12. The CBA Sections would be pleased to discuss this issue further with the CRA.

Yours truly,

(original letter signed by Yves Faguy for Melissa Saunders and Carrie Smit)

Melissa Saunders
Chair, Wills, Estates and Trusts Law Section

Carrie Smit
Chair, Taxation Law Section

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