Understanding Bare Trusts in 2026: Does Your Shop Need to File?

What Is a Bare Trust and How Does It Work?

A bare trust is a simple trust structure where a trustee holds property solely for the benefit of a named beneficiary. The trustee has no discretionary power. The beneficiary is the true owner. Bare trusts are uncommon in auto shop operations.

When Auto Shop Owners Might Use a Bare Trust

Bare trusts appear in estate planning when parents hold property for adult children or when holding property for a beneficiary pending transfer. They are rarely used for ongoing business operations. For a related tax-compliance angle, see Audits and the Auto Industry: What the CRA Looks for in Cash-Heavy Businesses.

CRA Filing Requirements for Bare Trusts

If you hold property in a bare trust, CRA requires you to file Form T1013 (Deemed Disposition of Property) to identify the beneficiary. You must also file annual trust returns if the trust earns income. Failure to file invites penalties.

Tax Implications of Bare Trusts

Income earned by a bare trust is taxed in the beneficiary's hands, not the trustee's. This can be advantageous if the beneficiary has a lower tax rate. However, deemed disposition rules apply when property is transferred into the trust.

Bare Trusts vs. Family Trusts

Bare trusts are simple and passive. Family trusts offer discretion in distributing income and capital. Auto shop owners considering trusts typically benefit from family trust structures more than bare trusts.

Documentation and Record Keeping

If you have a bare trust, maintain trust documents and CRA correspondence. Keep records of when the trust was created and who the beneficiary is. These documents prove compliance if audited.

Key Points About Bare Trusts for Auto Shops

• Bare trusts are rarely used in auto shop operations
• They hold property solely for a beneficiary
• CRA requires Form T1013 filing
• Annual trust returns may be required if trust earns income
• Income is taxed in the beneficiary's hands
• Documentation and record keeping are essential
• Family trusts are often better for business purposes

Should Your Auto Shop Structure Include a Bare Trust?

Most auto shop owners do not need bare trusts. If you are considering a trust structure for estate or tax planning, consult a lawyer and accountant. They can recommend whether a bare trust, family trust, or corporate structure best fits your situation. For a broader financial management perspective, review Capital Gains Inclusion Rates: What the 2025 Changes Mean for Your Garage.

Frequently Asked Questions