Life Interests and the Family Home – Probate vs. Taxes

September 2026

Does your parent want to give you title to their home while still living in it? A “life interest” is the legal approach often used by parents to do this. The deed of the property is transferred but the parent keeps a contractual agreement allowing them to live in it for the rest of their lives. Parents may do this to simplify the settlement of their affairs upon death, but may also do it to avoid payment of probate fees. This can create some significant income tax issues, and your lawyer may not be aware of this. In fact, many tax preparers are unlikely to (a) be aware of the life interest, or (b) if they are, may not know the tax issues.

Are you trying to avoid probate? What is probate? Probate is the process by which the government approves your Last Will and Testament. Effectively, this is getting legal approval that this is, indeed, the “last” Will. It allows your executor to settle your final affairs. If your Will is not probated, the executor does not have the protection of the law to distribute your assets to your beneficiaries. For small estates, or where all of your assets are held in joint name and/or distributed by way of beneficiary designations (e.g., life insurance, RRSPs, RRIFs, TFSAs, segregated funds), probate may not be necessary.

However, probate is important for protection of those involved in asset distribution. For example, assume that your executor gave the $50,000 in your bank account to your friend, Joe, as stated in your Will. However, a month later, another Will was located that was more recent, and you had changed your mind in that newer version. You now intended the money to be given to your friend, Sam. If Joe is unable or unwilling to repay the money, Sam could sue the executor for this money. In fact, if the bank distributed the money without seeing proof that the Will was probated, the bank could likely be held responsible also. This is the importance of probate.

The government charges a fee for probate which varies by jurisdiction, but is typically a percentage of the value of all assets held at death that will be distributed according to the Will. The home is often a valuable asset, and probate fees can be expensive, so parents may wish to transfer the home to their family before death to avoid these fees. Sometimes it is done because the parents are fearful of losing the home if they move to an assisted living or long-term care home. This is, most often, a needless fear, and discussions with the lawyer and professional financial planner is warranted if this is a concern. In PEI, see my article titled, Nursing Home Financial Assistance In PEI. Regardless of the reason, use of a life interest means a person can transfer home ownership while still being allowed to live in the home. However, it can have some serious tax consequences, which may outweigh the probate savings.

Principal Residence Exemption Impact

As long as they live in the home and retain full ownership, the home and up to one-half hectare of land will be eligible for the principal residence exemption at the time of death (or when the property is sold or given to the family, if earlier). Assume a parent has a home valued at $400,000 and gives it to their children today, retaining a life interest. After today, they no longer own the home. As required by tax law, they will report the disposal of their property on their tax return for that year, and claim the principal residence exemption if it qualifies as such for every year of ownership. They will pay no taxes on it.

Now, assume they (not the children) live in the home for another 10 years, the house increases in value to $500,000, and the last surviving parent dies. The family then decide to sell the home. The $100,000 increase in the value of the home will be taxable because the home does not qualify as a principal residence from the time it was gifted to the children. This is because none of the children lived there, and their parent did not own the home for the final 10 years. Even if the children do not sell it, this type of a gain could also occur if the family converts it to a rental property, or if one child buys the home from their other siblings.

Assuming that the children are in a 35% tax bracket and one half of the capital gain is taxable, there would be $17,500 of taxes owing on the $100,000 gain noted above. If the parents had not transferred the home to the children, this sale would have been tax-free, but probate fees would have applied on death. With probate fees of 1.5% as they are in some provinces, total fees would be $7,500, much less than the taxes. In fact, probate fees are lower than 1.5% in a number of provinces, such as 0.4% in PEI.

This would not be an issue if there is only one child, and that child lives with the parent. In such a case, the home would also be a principal residence for the child receiving ownership (assuming they have no other home). In such a case, this life interest transfer scenario may make sense, even more so if the parent owns a cottage as well as a primary home. In that situation, after the transfer, the parent could still claim the other property as a principal residence if they spend some time living there each year.

Immediate Tax Impact

There will be immediate tax costs if property transferred is not a principal residence, and/or the acreage exceeds the maximum allowed for the principal residence exemption (usually 1/2 hectare, or 1.24 acres). Any capital gains triggered will be taxable, and note that whether or not part of the gain is a tax-free disposal of a principal residence, all real estate transfers should be reported on the tax return, whether transferred by sale, gift, death or transfer to joint name. Note that sales should never be done between family members at a price other than fair value because of related tax penalties.

Reporting matters more than most people realize. Since 2016, the Canada Revenue Agency has been able to reassess an unreported disposition of real estate at any time, with no expiry. A year left unreported never becomes statute-barred. Filing an amendment to report it starts a three-year clock, after which the year closes. Working the other way, a late principal residence designation must generally be requested within ten calendar years after the end of the taxation year, so waiting too long can leave you exposed to reassessment without the ability to claim the exemption that would have sheltered the gain.

Valuation of the Life Interest and Remainder Interest

There are further complexities with life interests as well. At the time the life interest is created, the value of the home is split into two parts for tax reasons. One portion is the value of the “life interest”, and the balance is the value of the “remainder interest.” For tax purposes, the parent is treated as having sold their whole property at its resale value. Then, they are deemed to buy back the life interest at its share of the value, while the children receive the value of the remainder interest. These values become their costs for future transactions related to the property. Both parts have a value, but first, the total value of the property must be determined at the date of transfer for reporting it on the parent’s tax return. An appraisal may be necessary.

After the total value is determined, the portion of the total value that is related to only the life interest may be required. Whether this calculation is needed will depend on whether the house is sold while the parent is living or after their death. How should it be valued? One method I have seen used is to assume that the parent is renting the property until their death, and estimate the current lump-sum value of future rent. Life expectancy, rental value, and an interest rate for present value discounting must be determined to use this method.

To explain further, I will continue with the example above. Assume the life interest portion of the $400,000 total value is calculated to be $150,000, which means that the remainder interest is worth $250,000. At that time, the children are deemed to have paid $250,000 for the home, and the parents are deemed to have paid $150,000 for their life interest. This is based on subsection 43.1(1) of the Income Tax Act. These amounts become the costs for future tax calculations.

Instead of being transferred directly to the children, sometimes the house is transferred to a trust, with all of the children being the beneficiaries. If this is the case, the tax rules for the parent will be the same as explained earlier. However, the trust will generally be required to file a T3 tax return each year, resulting in additional costs for tax preparation fees, and a different tax reporting scenario upon eventual sale of the property.

Does a Life Interest Create a Trust?

This question matters more than it once did. New trust reporting rules apply for 2026 and later years, and they reach many informal family arrangements that nobody ever thought of as a trust.

The reassuring news first. Where the remainder interest is transferred directly to the children, and the parent keeps a genuine life interest, no trust is created at all. A trust exists when legal ownership and beneficial ownership of the same interest are split between different people. A life interest and a remainder interest are two separate interests in the property, and each is owned outright — legally and beneficially — by one party. The parent fully owns the life interest. The children fully own the remainder interest. Nobody is holding anything for anybody, so there is no trust and no T3 return.

The situation is different in two cases. The first is the trust variant described above, where the remainder interest goes to a trust rather than to the children personally. That is a real trust, and the annual T3 obligation applies. The second is the arrangement that was never properly documented — where the deed changed but nothing else did, the parent continues to make every decision and pay every expense, and the children would hand the property back on request. In substance nothing was transferred. That arrangement may be a bare trust, and it may also mean that no disposition ever occurred, so the probate savings the family was seeking were never achieved either.

Whether that bare trust actually has to file is a further question, and the answer turns on a detail that surprises people. There is an exception for a family home, but it asks whether the property would be the principal residence of one of the legal owners. Here the legal owners are the children, and the parent is the one living there. A home can qualify as your principal residence if you, your spouse or former spouse, or your child ordinarily lives in it — a parent is not on that list. So children who own a home occupied only by their parent cannot designate it, and the exception is not available to them.

A second exception may still help. Where the home is worth $250,000 or less, is personal-use property, and every trustee and beneficiary is a related individual, the arrangement is what the rules call a listed trust. In a July 2026 technical interpretation the Canada Revenue Agency confirmed that a bare trust which is also a listed trust is not required to file at all, whatever income or gains arise, unless the Agency demands a return. On Prince Edward Island values that exception will cover a good many family homes, but it will not cover all of them, so the value needs to be checked each year.

One further caution. Families who discover this problem sometimes sign a letter stating that, despite the deed, the parents remain the trustees. That does not work, because a trustee is someone who holds property for another and parents who are off title hold nothing. Worse, such a letter is evidence that no beneficial transfer ever occurred. I discuss this further in my article, Whose Property Is It, Really? Trusts, Joint Title, and the Family Home.

The difference between those outcomes rests on what was actually intended at the time of the transfer, and on whether that intention was written down. Where nothing was recorded, families are left reconstructing intentions years later, usually after a death and often with siblings who remember things differently. If you are considering a transfer of this kind, put the intention in writing at the time, and have a lawyer prepare or review it.

Future Property Disposal at Death of Parent

Let us assume that the parent lives in the home until their death. When they die, the children will inherit the full property, and the parent’s cost of $150,000 for the life interest will be added to the children’s cost of $250,000 for the remainder interest. This is based on paragraph 43.1(2)(b) of the Income Tax Act. Consequently, when the property is sold for $500,000, the children’s cost will be $400,000 ($150,000 + $250,000), resulting in the $100,000 gain discussed above.

Two technical points are worth noting for advisors. First, the parent has no gain or loss on the life interest at death, because Income Tax Act paragraph 43.1(2)(a) deems them to have disposed of it for proceeds equal to its cost. Second, the amount added to the children’s cost is not always the full cost of the life interest. Paragraph 43.1(2)(b) adds the lesser of that cost and the amount by which the value of the property immediately after death exceeds the children’s cost of the remainder interest. In the example above the addition is the full $150,000, but where a property has fallen in value the addition can be capped.

Income Tax Act paragraph 43.1(2)(b) only applies if the owner of the life interest is related to the owner of the remainder interest, and the parent has died before the property is sold. What happens if the parent had kept a life interest but deeded the property’s remainder interest as a gift to an unrelated friend. The tax situation would be worse. The cost of the life interest of $150,000 would not be added to the friend’s cost base and the capital gain on sale of property would be higher by $150,000. Granted, it would be unusual for a person to bequeath their family home to other than a family member, but it could happen if there are no other family members.

One qualification on the unrelated friend example. The wording of paragraph 43.1(2)(b) refers to persons who are not dealing with each other at arm’s length, rather than to related persons. Related persons are always treated as not dealing at arm’s length, so the outcome described above is correct for a parent and child. The arm’s length test is the broader one, though, and whether it is met between a person and someone to whom they have given a valuable property for nothing is a question of fact. Although not related by blood, marriage or adoption, other personal connections or dealings may deem a person to be not-at-arm’s length. Consequently, an unrelated friend may or may not be caught. This is worth confirming before relying on the result in a particular case.

Future Property Disposal while Parent is still Living

What happens if the property is sold prior to death of the parent, such as when the parent moves out of the home to live in an assisted-living residence or a nursing home? In that case, the above noted tax rule in Income Tax Act paragraph 43.1(2)(b) does not apply. Think about how this sale would need to occur. First, the parent would need to transfer their life interest to the children; otherwise, the children could not sell the property. This would be done by gift or fair market sale. If not a gift, sale by the parent at an amount less than fair market value could mean additional tax costs, and this should not be done (for any property). If you want to give the children a break, sell them the property at full value, and give them a gift of cash later, or speak to a lawyer about doing a combination of part by way of sale and part by way of a deed by gift (documented).

The value of the life interest at the time of this transfer to the children must be determined; let us assume it is $125,000. The value will have changed after the date of the initial property transfer when the life interest was created by the parent. This will result in a capital gain or a capital loss. It will usually be a capital loss ($25,000 in my example) because the parent would be older, and hence, it will be worth less. However, such a loss is a capital loss on personal property, and not tax deductible. The children will now add this later (and lower) value of $125,000 to the cost of their remainder interest ($250,000), making their tax cost $375,000. The selling price of $500,000 minus the total cost of both the life and remainder interests (e.g., $375,000) is used to calculate their capital gain (or loss) on the sale of the whole property. In my example, if the parent had died, the total cost would have been $400,000 ($250,000 + $150,000), not $375,000 ($250,000 + $125,000) – a $25,000 difference. In summary, sale of the property before death of the parent will result in a higher tax cost under normal circumstances because of the decrease in the value of the life interest as the parent ages.

The two outcomes side by side, using the figures above:

• Sold after the parent’s death — children’s cost is $400,000 ($250,000 remainder interest plus $150,000 life interest). Sale at $500,000 produces a $100,000 gain.
• Sold before the parent’s death — children’s cost is $375,000 ($250,000 plus the reduced life interest value of $125,000). Sale at $500,000 produces a $125,000 gain. The parent’s $25,000 loss on the life interest is denied because it is personal-use property, so it is lost to the family entirely.

The Canada Revenue Agency considered this situation at the 2022 STEP Canada Roundtable, in response to a technical interpretation request I submitted (CRA document 2022-0929391C6). The question dealt with a parent who transferred a remainder interest and later moved to an assisted-living residence, with the property sold before death. Anyone advising on these arrangements will find the response worth reading.

My conclusion is that parents should not transfer their home to their children (with or without a life interest) unless they understand the full income tax consequences. If they are worried about losing the home because of future occurrences, they should obtain professional advice, both legal and tax, to determine if their worries are justified. And, if the property is transferred and a life interest retained, the family should obtain tax advice before selling the property if their parents are still living. Advice on trust reporting should also be obtained if the property is being transferred to the children to be held “in trust” for the parents, whether or not this trust is formalized in writing.

Finally, be aware that, with rare exceptions, all real estate transactions should be reported on a tax return whether sold, gifted, placed in joint name or transferred at death. If property is sold to a family member, it should be sold at its full fair market value, and not less, to avoid double taxation in the future. Obtain tax advice if you are considering such a transaction. If you are concerned about marriage breakdown issues for your children when transferring property to them by sale or gift, seek the advice of a family law lawyer on how to protect the property. And, finally, before putting a property in joint name, seek the advice of legal counsel and a professional tax advisor on the risks.

Refer to my articles titled, Joint Ownership – Understand the Risks and Benefits and “Whose Property Is It, Really? Trusts, Joint Title, and the Family Home” for further information.

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Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum

Whose Property Is It, Really? Trusts, Joint Title, and the Family Home

September 2026

This article is general information, not advice for your situation. Whether a particular arrangement is a trust, and who beneficially owns a property, are legal questions that turn on the specific facts and documents in each case. Nothing here can determine the answer for you, and nothing here should be acted on without professional advice. If you have concerns after reading this article, complete the Real Estate Ownership Worksheet available on www.CorkumFinancial.ca and take it to your legal and financial advisors to get their opinion on your situation

Most people think of a trust as something formal: a document drawn up by a lawyer, signed, witnessed, and filed away. In fact, trusts are created accidentally in Canadian families all the time — around kitchen tables, at bank counters, and in lawyers’ offices during a routine transfer of the family home.

Is your name on a bank account where the money belongs to someone else, or vice versa? Is your child’s house in your name? Is your child’s name on your home? If any of these or similar situations apply to you, you need to keep reading.

That matters more now than it used to. Under the enhanced trust reporting rules in section 150 of the Income Tax Act (“ITA”), many of these informal arrangements may require an annual T3 Trust Income Tax and Information Return, together with Schedule 15 identifying everyone involved. Penalties for not filing can be significant.

This article explains the concepts in plain language, works through the situations I see most often, and — most importantly — explains why writing down what you actually intended is no longer optional, but essential.

However, these rules have been changing every year for several years, are still not fully implemented at the time of writing, and are based on my understanding of the legislation (actual and proposed), which is easy to misinterpret. CRA has refused to offer opinions to me on certain common scenarios, and has advised seeking legal advice, which is indicative of the complexity of these matters. Consequently, I accept no liability for errors or omissions in this article. My goal for this article is to give you an awareness of whether you should have concerns. I am not a lawyer and I am not providing legal advice, only information based on my understanding of tax law. You should see your own legal and financial advisors to take the appropriate action.

Part 1: Four terms you need to understand

Legal owner

The legal owner is whose name appears on the title, deed, or account. It is the public, on-paper answer to “who owns this?” For real estate, whose name is on the property tax bill? The deed or land registry is the definitive record; the property tax bill is a useful clue but follows a mailing arrangement and is not itself proof of title.

Beneficial owner

The beneficial owner is the person who truly owns the property in substance — who enjoys it, benefits from it, controls what happens to it, and bears the economic gain or loss.

Most of the time these are the same person, and no one needs to think about the distinction. Tax problems arise when they are not the same person.

Bare trust

A bare trust exists when the legal owner holds title but has no real decision-making power. They must do what the beneficial owner tells them. In substance, they are acting as an agent — a name on a piece of paper. It is the beneficiary who is in charge, telling the legal owner what to do.

The Act reaches these arrangements through subsection 150(1.3), which deems certain arrangements to be trusts, and each legal owner to be a trustee, for tax reporting purposes. ^ITA150(1.3)

Bare trusts are frequently created without anyone intending to create a trust at all.

Express trust

An express trust exists when the legal owner (the trustee) genuinely manages the property and exercises independent judgment, within terms that have been set for the benefit of someone else. The beneficiary is not in charge — it is the trustee making the decisions.

Express trusts are usually put in writing — but writing is not required. This is the point some people get wrong. A family that never signed anything may still have created an express trust. “We never signed a trust document” is not a defence against having one.

The test that decides all of it: the three certainties

For any trust to exist — bare or express — three things must be present, a requirement that comes from long-established common law trust principles rather than from the Income Tax Act:

1. Certainty of intention — a genuine, present, irrevocable intention to hold property for someone else’s benefit
2. Certainty of property — a clearly identified asset
3. Certainty of beneficiaries — clearly identified people who benefit (now or in the future)

Certainty of intention is where most family arrangements succeed or fail, and it is worth being precise about what it means. There is a difference between:

1. A wish or a hope (“I’d like this to go to the grandchildren someday”) — this creates nothing, and
2. A binding present commitment (“This money is no longer mine; I hold it for the grandchildren”) — this creates a trust.

Only the second creates a trust. And where nothing has been written down, it is often impossible to tell which one happened. This can lead to expensive disputes between family members over entitlements and with the Canada Revenue Agency over income taxes (and resulting penalties and interest).

Part 2: Bank accounts and informal savings

The account “set aside for the grandchildren”

A grandparent opens an account in their own name. They think of it as money for the grandchildren’s education. They mention it to the family. Nothing is signed.

Is this a trust? Very possibly not.

If the grandparent remains free to spend that money on themselves at any time — if they could change their mind next year, or need it for their own care, and no one could stop them — then in substance the money is still entirely theirs. It is their own account with a personal plan attached. There is no trust, no beneficial owner other than the grandparent on these facts, and no reporting obligation.

But if the grandparent has genuinely and irrevocably committed those funds — the money is no longer theirs to redirect, and they simply hold it until the grandchildren need it — then a trust does exist.

The trouble is that from the outside, and years later, these two situations can look identical. The same account, the same balance, the same family understanding. Only evidence of what was actually intended tells them apart — if any exists.

By way of some technical information, under ITA 74.1(2), income from property transferred to a non-arm’s-length person under 18 (e.g., a grandchild) is attributed back to the transferor (e.g., the grandparent) until the year the minor turns 18. ^ITA74.1(2) So if it is a trust, the grandparent reports the income because of attribution; if it is not a trust, he reports it because it’s his. Hence, whether or not this is a trust, the grandparent would be reporting the interest income. However, capital gains earned on the gift, if any, would be reported by the minor or by the trust. Therefore, if capital gains exist, who did the tax reporting of those gains may be one indication of whether or not a trust exists. One caution on using this as a test: under ITA 75(2), where trust property can revert to the person who contributed it, or where that person retains control over who receives it, both income and capital gains are attributed back to the contributor. ^ITA75(2) That is most likely to be the case in exactly the informal, undocumented arrangements where you would most want a reliable indicator.

The “in trust for” (ITF) account

A parent or grandparent opens an investment or bank account “in trust for” a minor. Surely the label settles it?

It does not. An ITF designation is a label, not proof of a trust. It may reflect a genuine trust. It may equally be nothing more than a reminder to the account holder that these funds are informally earmarked for a child’s future — with the adult retaining full freedom to use the money themselves.

Where the contributor keeps unrestricted control and could withdraw the funds for their own purposes without answering to anyone, there is a real argument that no trust was created and no beneficial interest ever passed to the child.

Where a genuine trust does exist, the next question is which kind. If the adult retains real discretion over how funds are invested and when they are paid out, that points toward an express trust. If the adult simply holds the funds and must follow the beneficiary’s directions, that points toward a bare trust. (Where funds are held for a young child, a bare trust is unlikely in practice, because a minor cannot give the directions an agency relationship requires.)

Even if a trust does exist, you should note that a minor beneficiary may be entitled to the money at the age of majority unless there is a formal agreement, and it is worded appropriately, and even then may be dependent on provincial law. This is based on the court case of Saunders v. Vautier ([1841] 4 Beav 115), a rule that has since been abolished in Alberta, Manitoba and Nova Scotia, but which continues to apply in most other provinces. It is an English trusts law case that permitted an adult beneficiary with a vested interest in a trust to take their entitlement at the age of majority, regardless of the fact that the trust documentation stated a later age.

Pecore v Pecore, 2007 SCC 17, provides that money gratuitously deposited by a parent to a joint account with adult child is presumed to be held in trust by the child for the parent unless this presumption can be rebutted by evidence to the contrary. On the other hand, joint accounts with minor children are presumed to have been for the benefit of those parties. This case confirms the importance of documentation of intention. It is not clear whether the same presumption applies to grandparents, but needless to say, documentation of intention will clarify that situation also. Presumptions between spouses are a separate question: Pecore itself concerned a parent and an adult child. I understand that spousal presumptions are largely governed by provincial family property legislation, which varies from province to province.

Practical takeaway: if you intend to create a trust for a child or grandchild, say so, in writing, at the time. If you intend only to earmark savings that remain your own, say that instead. Either is a legitimate choice. Silence is the problem. A grandparent who wants real control should not use that wording “in trust for” on the bank account at all. A grandparent who genuinely wants a trust should write down the terms — especially a deferral past the age of majority with a proper gift over to another beneficiary if the first one is predeceased, if that is the intent.

Part 3: Real estate — where the stakes are highest

Real estate is where these questions carry the largest dollar consequences, because the amounts are large and families rarely document anything. For example, the principal residence exemption is at risk and unreported capital gains taxes and arrears interest (and maybe penalties) can be substantial.

Scenario 1: Adding a child to the title of the family home

A parent adds an adult child to the title of the home or cottage (and/or perhaps vacant land) as joint owner. What happened depends entirely on what was intended:

(a) A completed gift — no trust at all. The parent intended to give the child a real, present ownership share. Legal ownership and beneficial ownership now match: both parent and child truly own their shares.

There is no trust here, and no T3 reporting question. That conclusion follows from the intention described, and a different intention would produce a different answer. But there is an immediate tax consequence — the parent has disposed of part of the property at fair market value and must report it, claiming the principal residence exemption if it applies. The portion now owned by the child will generally not qualify for the child’s principal residence exemption if the child does not live there — a future tax cost that often surprises families. The increase in value of the child’s portion of the home from their date of acquisition until they dispose of it will be taxable. This assumes the child cannot claim the property as their own principal residence for those years. This would not have been the case if the home had been retained by the parent.

(b) A convenience arrangement — a bare trust. The parent intended to keep everything, including control. The child was added with the thought of avoiding probate and/or simplifying the estate. The child cannot sell, cannot move in and cannot borrow against the property unless directed to do so by the parent, and would transfer title back on request. The child is acting as an “agent” for the parent and is doing as told.

Here, legal ownership (parent and child) has diverged from beneficial ownership (parent alone). The child holds bare legal title. There is no disposition and no immediate tax — but this arrangement may be a bare trust requiring T3 and Schedule 15 annual reporting, unless an exception applies. One such exception for a bare trust is provided in ITA 150(1.31), where all legal titleholders are related and the property is a principal residence of one or more of the legal owners. ^ITA150(1.31) If:

1. parent and child are all of the legal owners
2. the parent remains as the beneficial owner and
3. the property qualifies as a principal residence for either the parent or the child,

then no T3 will be required. Remember that the property must normally be no more than 1.24 acres of property to qualify as a principal residence. This exception is for a joint ownership situation — if the legal title is owned by only one person, and the other person is the beneficial owner, then a T3 would be required.

Another exception for a bare trust in ITA 150(1.31) applies between spouses: where one spouse is the sole legal owner and the property is a principal residence, no T3 is required. That exception does not extend to other relationships, such as a parent holding title for a child.

ITA section 150(1.2) also provides some exceptions for all trusts, and are called “listed trusts” if this section applies. One of these exceptions in ITA 150(1.2)(b.1) exists where all of the trustees and all of the beneficiaries are related to one another and the trust property is “personal use property” (such as a home) or money-like assets and they have a value of no more than $250,000 at any time in the year. ^{ITA150(1.2)(b.1)} Caution — properties used to earn income, such as rentals and tourist businesses, would not be personal use properties.

Where those conditions are not met, there is another threshold in ITA 150(1.2)(b) for any assets held in trust if they are valued at not more than $50,000. ^{ITA150(1.2)(b)} A very small home or other real estate could be exempted from filing a T3 that way also.

Be careful with these exceptions. Qualifying as a “listed trust” removes the Schedule 15 requirement, but it does not remove the T3 return itself. A listed trust must still file for any year in which it fails one of the conditions in ITA 150(1.1)(b) — for example, where there are taxes payable, or a disposition of capital property, or a taxable capital gain. Part 5 sets out more of the list.

(c) Something in between — an express trust. This is the least common of the three outcomes, but it does happen, and what separates it from a bare trust is worth understanding.

In a bare trust there is a single beneficial owner, and the person on legal title simply does as instructed. An express trust arises instead of a bare trust where the person on legal title has to exercise real judgment themselves. Two situations produce that result.

The first is where the person on title holds it for somebody other than the person giving instructions. A parent adds one adult child to title but intends for that child to hold the share for all of the siblings. The child on title must then decide when to sell, how to divide the proceeds, and what to do about a sibling who wants out early. Those decisions belong to the child as trustee. Nobody is simply relaying the parent’s wishes, so it is not a bare trust.

The second is where more than one person holds a beneficial interest and those interests pull in opposite directions. Suppose a parent transfers the home to one child, on the understanding that the parent will live there for life and that on the parent’s death the home will be shared among all of the children. The child on title must now balance two things that genuinely conflict. The parent wants low upkeep costs and no disruption. The siblings want the roof replaced and the value protected. Both claims are legitimate. The child cannot simply take orders from the parent, because the child owes something to the siblings as well. Weighing one against the other is the work of a trustee, and the arrangement is an express trust rather than a bare one. Note that the person on title may well be one of the beneficiaries too. What makes it an express trust is not that the trustee owns nothing; it is that competing interests exist and somebody has to weigh them.

This is different from a straightforward disagreement among co-owners. If three people are on title and those same three people are the real owners in the same shares, there is no trust at all, whatever they may argue about. They are simply owners, each speaking for their own share. A trust arises only where somebody is deciding on behalf of somebody else.

A third variation deserves a mention because it arrives without warning. A parent adds a child to title intending to keep full beneficial ownership — a bare trust — and later loses capacity. Once the parent can no longer give instructions, the child cannot be acting as a mere agent, because nobody remains to instruct them. In my view, the arrangement may become an express trust at that point, which would change the reporting obligation. I have not found this addressed directly in CRA guidance, so treat it as a question to raise with your legal advisors rather than a settled answer.

An express trust is taxed under the ordinary trust rules rather than as a bare trust, and it carries its own T3 reporting obligations.

What if the home is transferred outright instead of into joint names? The same analysis applies. If the parent transfers the property to a child and comes off title entirely, but it is understood that the parent remains in charge of what happens to it, the parent has not given up beneficial ownership. The child holds legal title alone and must do as the parent directs, so this is a bare trust, with the child as trustee and the parent as beneficiary. No disposition occurred, because beneficial ownership never moved, and the probate saving the family was probably seeking was not achieved either.

Families sometimes try to record this by signing a document stating that, despite the deed, the parents remain the trustees. That does not work, because a trustee is someone who holds property for another, and parents who are off title hold nothing. What such a document really proves is that no beneficial transfer occurred, which is the very thing the family was hoping to achieve. If the intention is for the child to truly own the home while the parent keeps a protected right to live there, the tool for that is a life interest, not retained control.

One further point on the outright transfer, because it turns on a detail that is easy to miss. Where the child holds sole legal title and actually lives in the home, the family home exception should apply, so no T3 is required even though a bare trust exists. Where the parent lives there instead, it fails. This is because a home can qualify as a taxpayer’s principal residence when it is ordinarily inhabited by that taxpayer, their spouse or former spouse, or their child — a parent is not on that list. Same deed, same understanding, opposite reporting answer, turning entirely on who lives in the house.

Note that the tax outcomes of (a) and (b) are opposite: (a) triggers immediate tax reporting on the personal T1 tax return and no T3 trust reporting; (b) triggers no tax but potential T3 trust reporting on an annual basis. Getting it wrong in either direction creates a problem.

Scenario 2: The properly structured life interest

Many parents transfer the home to their children while keeping the right to live there — a life interest (or life estate), with the children holding the remainder interest. The life interest is the “right” to live in the home for the rest of their life. The “remainder interest” is the actual ownership of the property that passes upon death of the life interest holder. Neither owner can take away the other person’s entitlements, and they each have a value. I have written elsewhere about issues this creates — see Life Interests and the Family Home — Probate vs. Taxes on my web site at www.corkumfinancial.ca.

Does the life interest itself create a trust requiring T3 reporting? In the properly structured case, no.

This is worth understanding clearly, because it is reassuring. A trust exists when legal and beneficial ownership of the same interest are split between different people. A life estate and remainder arrangement does something different: it divides the property into two separate, successive interests, and each interest is then owned outright — legally and beneficially — by a single party. The parent fully owns the life estate. The children fully own the remainder. Nobody is holding anything for anybody. No divergence, no trust, no T3. Unless the courts or CRA change their interpretation after this new trust legislation is legislated and tested in practice, this is my understanding.

The arrangement falls outside the trust rules but Income Tax Act section 43.1 exists as a standalone rule to deem a disposition to occur and to allocate cost between the two interests:

1. Subsection 43.1(1) deems the parent to have disposed of the life interest at fair market value at the time of transfer, reportable on the parent’s return, and to have immediately reacquired it with a cost base equal to the same value. ^ITA43.1(1)
2. The remainder interest being transferred to the children is also reportable on the parent’s return at that time, and becomes the children’s cost base for the future disposition.
3. Paragraph 43.1(2)(b) adds the parent’s life interest cost to the children’s cost base on the parent’s death, where the parties are related. ^{ITA43.1(2)(b)}

One caution about selling before death. Everything described above assumes the property is held until the parent dies. If it is sold earlier — often because the parent moves into assisted living — the arrangement does not unwind as cleanly. The cost attaching to the parent’s life interest is not automatically transferred. The children are then left with a larger taxable gain than they would have had if the parent had died still holding the life interest, and they usually cannot shelter it with the principal residence exemption because they do not live there. The family can end up paying materially more tax than anyone expected when the transfer was made. If a sale during the parent’s lifetime is even a possibility, get advice before it happens.

So in the clean case, the parent reports a disposition personally, and there is no trust and no T3 filing.

Two conditions matter, though. First, the life interest must be a genuine, defined, legally binding property interest — properly documented — not an informal family understanding that “Mom will keep living there.” Second, this applies where the children own the remainder directly and personally. If the remainder interest is instead transferred to a trust for the children, CRA has confirmed that subsection 43.1(1) still applies to trigger the disposition, but now a genuine trust exists as well, with its own T3 obligations under the ordinary trust rules.

Scenario 3: The informal life interest — where the real risk lies

The problem is rarely the properly structured life interest. It is the version where the paperwork transferred the house but nobody addressed what was actually intended.

(a) Parent transfers full legal title but keeps full control and pays all expenses. The parent can still decide to sell, renovate, or mortgage. They pay everything. Nothing about the substance of ownership changed.

In this case the children likely hold bare legal title only, with the parent remaining the beneficial owner of the entire property. Consequences: no disposition occurred on the transfer, section 43.1 does not apply, and this is likely a bare trust with T3 reporting obligations unless an exception applies.

There is an important sting here. If this is what happened, the probate savings the family was seeking may not have been achieved either. If the property never left the parent’s beneficial estate, then on death, that beneficial interest likely still has to be dealt with under the will. The family may end up with neither the probate benefit nor a clean tax result — just an undocumented bare trust and possibly a filing requirement nobody knew about.

(b) Parent transfers full legal title but keeps control, but children pay some or all expenses. This is ambiguous, and expense-sharing alone does not resolve it.

I understand that under ordinary property law, a life tenant is generally expected to cover operating costs (utilities, routine upkeep), while the remainder holders often cover capital improvements, property taxes, and insurance — protecting the asset they will eventually receive. Children paying property tax and major repairs while the parent pays utilities is entirely consistent with a genuine life interest and remainder arrangement.

What cuts the other way is the scope of the parent’s control. If the parent’s authority extends only to their own use and enjoyment during their lifetime, that is what a life tenant has, and the structure holds. If the parent could unilaterally sell the whole property or override the children entirely, the children’s interest may be illusory regardless of who paid what — pointing back toward a bare trust.

Expense patterns are evidence. They are not the answer by themselves; documentation of intentions is essential.

(c) Parent transfers full legal title but parent and children share both expenses and decision-making. Where the children genuinely participate in decisions — weighing the parent’s right to occupy against their own eventual ownership, exercising real judgment rather than following instructions. This looks most like an express trust, with the parent as life-interest beneficiary and the children as remainder beneficiaries. The children are holding the property title as trustees until the parent gives up the life interest. It would be taxed under the trust rules rather than under section 43.1, and would carry T3 obligations.

Part 4: What needs to be documented

In every scenario above, the same handful of questions decides the outcome. Where these are answered in writing at the time of the transaction, the tax treatment is usually clear. Where they are not, families are left reconstructing intentions years later — often after a death, often with siblings who remember things differently. Depending on the final conclusions reached by the family or by the CRA, two circumstances are highly likely:

1. Personal T1 tax returns may have been filed without reporting a required property disposition or a principal residence exemption form, resulting in substantial liabilities for capital gains taxes and/or late filing penalties and interest costs
2. T3 Trust Income Tax and Information Returns may not have been filed resulting in substantial penalties and interest.

Document, at the time and in writing:

1. Whether a real, present, irrevocable transfer of beneficial ownership was intended — a completed gift now, or only legal title moving
2. Who controls major decisions — sale, mortgage, renovation, change of use — and whether that authority is independent or shared
3. Whether the arrangement can be undone at the original owner’s discretion (if it can be freely revoked, no beneficial interest genuinely passed)
4. The reasoning behind the expense arrangement — not just who pays what, but what that split was meant to reflect
5. What happens if circumstances change — for example, if the parent needs to move into care
6. For a life interest: that it is a defined, legally binding interest, properly created, with valuation support for the section 43.1 allocation
7. For the tax reporting, retain the records so the executor of the estate can verify that proper reporting was done in the event of CRA questioning.

Who should prepare the documentation?

A lawyer is strongly recommended, and in some circumstances essential. Three reasons stand out.

First, where land is involved, a written record may be more than helpful evidence. I understand from my research that in most common-law provinces, rules descended from the old Statute of Frauds and requires a declaration of trust respecting land to be evidenced in writing and signed by the person creating it. An unwritten understanding about who really owns the house may therefore be difficult to enforce, quite apart from any tax question. Confirm the position in your own province with a lawyer.

Second, recording an intention and giving effect to one are different acts, and the difference is easy to miss. A signed statement that beneficial ownership always rested with the parent records a state of affairs that already existed. A document that transfers beneficial ownership creates a disposition, with immediate tax consequences. A family that does not appreciate the distinction may prepare something in writing that accidentally triggers a change at that later date of the very event it was trying to describe.

Third, the people signing may have opposing interests. A child confirming that they hold title for a parent is giving up any claim to a valuable asset. If a dispute arises later — most often among siblings after a death — a signature obtained without independent legal advice is far easier to attack. Where the amounts are significant, each party should have their own lawyer, or at least a clear written acknowledgement that independent advice was offered and declined.

Can families do this themselves? A dated record of what everyone intended, signed at the time by everyone on title and everyone claiming a beneficial interest, is far better than nothing and costs nothing to prepare. Memory is the alternative, and memory fades and diverges. But a home is rarely a small asset, and a homemade document that says the wrong thing is worse than no document at all, because it becomes evidence of the wrong intention. The sensible course is to write down the facts while they are fresh, treat that as a temporary record, and have a lawyer review and formalize the arrangement. I have prepared a template for such a document, titled “Real Estate Ownership Worksheet,” which is not a legal document, but a data collection worksheet for presenting to your lawyer and tax advisor. (See the downloadable Real Estate Ownership Worksheet)

Whatever is prepared should be dated, signed by every party, and kept somewhere safe where the executor can find it, ideally alongside a copy of the will and the property records.

Part 5: What reporting may be required

Where a trust — bare or express — does exist, paragraph 150(1)(c) requires a T3 return, and in many cases also requires Schedule 15 identifying trustees, beneficiaries, settlors, and controlling persons. ^ITA150(1)(c)

There are exceptions. Subsection 150(1.31) removes certain arrangements from bare trust treatment for reporting purposes, including (among others) where all legal owners are also the beneficial owners, and for certain principal residence arrangements between related persons. Subsection 150(1.2) then exempts certain “listed trusts” — for example, trusts in existence less than three months, trusts holding assets under specified financial thresholds, and various registered and charitable arrangements, among others. The detail matters, and the exceptions are narrower than they first appear.

When must a listed trust still file?

Being a listed trust is not a blanket exemption, and the way the provisions fit together is worth setting out, because the point is widely misunderstood. This explanation is technical — I included it more for tax and legal professionals who may be reading this. Families trying to understand the basic concepts can skip the numbered points below. I again remind you that these are my understandings of this complex law, all of the legislation has not yet received Royal Assent at the time of writing, and I accept no liability for reliance on information in this article.

1. ITA paragraph 150(1)(c) requires a trust to file a T3 return. Subsection 150(1.1) then provides exceptions — broadly, no return is required where there is no tax payable and no disposition of capital property or taxable capital gain. Those exceptions apply to trusts even though this subsection refers to “individuals” because subsection 104(2) deems a trust to be an individual in respect of the trust property. ^{ITA150(1);ITA150(1.1);ITA104(2)}
2. Subsection 150(1.2) removes the 150(1.1) non-filing exception for an express trust resident in Canada, which is why most trusts must now file every year regardless of activity. “Listed trusts” are then carved out of subsection 150(1.2), so for them the subsection 150(1.1) exceptions continue to apply. If you are not confused by this in, out, back in, back out legislation, it is a miracle. ^ITA150(1.2)
3. The practical effect is this: a listed trust files only for a year in which it fails one of the subsection 150(1.1) conditions. For an express trust that is a listed trust, CRA identifies those circumstances in two groups. The first group comes from the Act: the trust has tax payable; is requested by CRA to file; is a deemed resident trust; is resident in Canada and has disposed of, or is deemed to have disposed of, capital property, or has a taxable capital gain; is a non-resident with a taxable capital gain or a disposition of taxable Canadian property; or holds property subject to ITA 75(2). The second group is expressed as dollar thresholds: the trust has provided a benefit of more than $100 to a beneficiary for upkeep, maintenance, or taxes on property maintained for that beneficiary’s use; or has allocated income, gain, or profit to a beneficiary where the trust had total income over $500, allocated more than $100 to any single beneficiary, distributed capital, or allocated income to a non-resident beneficiary.^{ITA150(2);ITA94(3);ITA75(2)}
4. That second group deserves a caution, because those dollar thresholds do not appear in the Income Tax Act or the Income Tax Regulations at all. Regulation 204(1) requires a return from every person receiving income, gains, or profits in a fiduciary capacity and sets no minimum at all, and Regulation 204(3) lifts that requirement only for trusts governed by registered plans. The $500 and $100 figures appear instead in CRA’s T3 Trust Guide. On my reading, they are administrative positions describing when the CRA will require the return that Regulation 204(1) already demands, rather than statutory exemptions. ^{ITR204(1);ITR204(3)}
5. A bare trust is treated differently, and more favourably. In a July 2026 technical interpretation, CRA stated that none of the situations in paragraph 150(1.1)(b) can ever apply to a trust described in subsection 150(1.3), in any taxation year. It also stated that subsection 150(1.3) deems such an arrangement to be a trust only for the purposes of section 150 of the Act and section 204.2 of the Regulations, and not for the purposes of section 204 of the Regulations. The result is that a bare trust which is also a listed trust is not required to file at all, whatever income, gains or dispositions arise, and the only route to a filing obligation is a demand from the Minister under subsection 150(2). The dollar thresholds discussed above therefore have nothing to attach to in the case of a bare trust. Note that a technical interpretation is not binding on the CRA, and it settles only the filing question — it assumes there is a bare trust, which depends on what the parties intended and on the evidence of that intention.^{CRA Technical Interpretation 2026-1099261E5, July 14, 2026}

Penalties for failing to file can be substantial, and additional penalties apply for false statements or omissions made knowingly or through gross negligence.

This is not a do-it-yourself area. If legal title to your property does not match who really owns it — or if you are not sure whether it does — get professional advice before the filing deadline, not after. For bare trusts, the first filing deadline is March 31, 2027 for the 2026 calendar year. It is a month earlier than your personal tax return. For express trusts, rules have existed for past years. (The bare trust date assumes the current proposals are enacted and brought into force as expected; confirm the position before relying on it.)

There is another consideration in this discussion that may be relevant. Effective in 2016, transfers of the beneficial ownership of a principal residence, whether by way of gift, sale, transfer to joint ownership, or death, have been required to be reported on your tax return in order to qualify for the principal residence exemption. Amounts are to be reported on Schedule 3 and on Form T2091. If a change in beneficial ownership has occurred in 2016 or later that you did not report properly, you should amend your tax return promptly. Without doing so, you may be subjected to thousands of dollars of capital gains taxes, arrears interest, and maybe penalties when/if the property transfer is identified by the Canada Revenue Agency. There is a penalty for late filing form T2091, which is $100 per month to a maximum of $8,000, although it may be waived if CRA gives approval under its Taxpayer Relief provisions. Remember that the principal residence normally only includes 1.24 acres of land. If you disposed of nonqualifying land, you should still correct your tax return and pay the required taxes to avoid the potential of future interest and penalties upon CRA audit.

For taxation years ending after October 2, 2016, ITA 152(4)(b.3) allows the CRA to reassess an unreported disposition of real estate at any time, with no expiry. Under ITA 152(4.01), the reassessment is confined to amounts reasonably regarded as relating to that disposition. ^{ITA152(4)(b.3);ITA152(4.01)} There is no cut-off working backwards; 2016 is simply the year the rule took effect, and a year left unreported never becomes statute-barred. Reporting the disposition changes that. Once you file the prescribed form amending the return, the CRA has three years from that filing, and the year then closes. The 10-year limit that people often have in mind runs the other way — it restricts the taxpayer, not the CRA. A late principal residence designation is made under the late, amended, or revoked elections rules in ITA 220(3.2), and a request to reduce tax or obtain a refund under ITA 152(4.2). ^{ITA220(3.2);ITA152(4.2)} Each of which must be made within 10 calendar years after the end of the taxation year. For 2016, that window closes on December 31, 2026. The combination is what makes delay dangerous. After that date, the CRA may still reassess a 2016 disposition at any time, while you may no longer be able to file the designation that would have sheltered the gain. If you have made this oversight, contact a tax professional promptly.

The bottom line

Three things are worth remembering:

1. A trust does not need a signed document to exist. Families create them by accident.
2. A label does not create a trust either. “In trust for” on an account, by itself, proves nothing.
3. What decides the outcome is intention — and where intention was never written down, it may not be possible to prove what it was.

If you are holding property for someone else, or someone is holding property for you, or your name is on something that is not really yours, talk to a lawyer and a tax advisor. Complete the Real Estate Ownership Worksheet available on www.CorkumFinancial.ca and take it with you to get their opinion on your situation. The cost of that conversation is far lower than the cost of guessing wrong. If required, file or amend prior year tax returns.

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Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum

Real Estate Ownership Worksheet

August 2026

If you’ve read Whose Property Is It, Really?, you already know that families often add a child or spouse to a property’s title without ever writing down what everyone actually intended — and that silence can create tax and legal problems years later.

This worksheet is a tool to help you capture the facts while everyone still remembers them: who is on title, who paid for what, who makes the decisions, and what was really meant to happen. It is not a legal document, and completing it does not decide anything on its own. It is meant to be filled in at home and then brought to your lawyer and your accountant, so your meeting with them is more productive and less costly.

Real_Estate_Ownership_Worksheet_FILLABLE

This worksheet is provided for information only and is not legal or tax advice. Blair Corkum is not a lawyer and does not provide legal advice.

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Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum