Name on Parents’ Property for Mortgage Only?How a Bare Trust Can Rescue You from Capital Gains Tax

In Canada, it is extremely common for parents to add a child’s name to a property only to qualify for a mortgage. In most families, everyone understands that the child is not a “real owner,” does not live in the home, and will never receive sale proceeds.

Unfortunately, CRA does not rely on family understanding. If your name appears on title, CRA may treat you as an owner and assess capital gains tax, even if the arrangement was strictly for financing purposes.

This is where a bare trust becomes critical.

What Is a Bare Trust (In Simple Terms)

A bare trust exists when:

• One person holds legal title only, and

• Another person holds all beneficial ownership

In a typical mortgage-only situation:

• The child is the bare trustee (name on title only)

• The parents are the beneficial owners (they pay, control, and benefit from the property)

When structured and documented correctly, a bare trust allows CRA to recognize that:

• The child does not own the property for tax purposes

• The parents own 100% of the property

• Capital gains tax does not apply to the child

Why CRA Scrutinizes These Arrangements

CRA’s default position is simple:

If your name is on title, you are presumed to be an owner.

CRA will ignore verbal explanations like:

• “It was only for mortgage approval”

• “I never received any money”

• “It’s my parents’ house”

Without proper documentation, CRA may:

• Allocate a percentage of the capital gain to the child

• Deny the Principal Residence Exemption for that portion

• Issue reassessments, interest, and penalties

This often happens years after the sale, during audits or reviews.

When a Bare Trust Should Be Created (Very Important)

✅ Best Time: At the Time of Purchase

The strongest position is when a bare trust or nominee agreement is created at purchase, clearly stating:

• The child is on title only for financing

• The parents are the sole beneficial owners

• The child has no right to sale proceeds

This provides clear, contemporaneous evidence if CRA ever reviews the transaction.

⚠️ If It Was Not Done at Purchase

Many families did not create a bare trust at the beginning. While this is common, it increases risk.

A bare trust can still be documented later, but CRA will then examine:

• Who paid the purchase price

• Who paid the mortgage, taxes, insurance, and repairs

• Who controlled the property

• Who received the sale proceeds

Late documentation is still far better than no documentation, especially before a sale occurs.

What CRA Looks for to Accept a Bare Trust

CRA does not rely on one factor alone. They look at the full picture, including:

✔️ Parents paid 100% of costs
✔️ Parents controlled the property
✔️ Parents received 100% of sale proceeds
✔️ Child never lived in the property
✔️ Child never benefited financially
✔️ Child was added solely for mortgage qualification

A written bare trust agreement is the single most important supporting document.

New CRA Bare Trust Filing Requirements (Critical)

Under current CRA rules, many bare trust arrangements now require:

• Filing a T3 Bare Trust Return

• Disclosure of trustees and beneficiaries

• Filing even when no tax is payable

Failure to file can result in penalties of:

• $25 per day (minimum $100)

• Up to $2,500 or more

Many taxpayers are unaware of this obligation until CRA sends a compliance letter.

What Happens If a Bare Trust Is Not Properly Addressed

If CRA rejects the bare trust position:

• The child may be taxed on capital gains

• Only 50% of the gain is taxable, but it can still be significant

• The gain can push the child into a higher tax bracket

• Interest and penalties may apply

Receiving $0 from the sale does not protect you.

How We Help — Bare Trust Creation, Review, and Filing

We specialize in bare trust structures, particularly in:

• Mortgage-only ownership situations

• Parent–child property arrangements

• CRA-compliant documentation and filings

Our services include:
✔️ Reviewing title and ownership structure
✔️ Determining whether a bare trust applies
✔️ Drafting bare trust / nominee agreements
✔️ Advising on capital gains exposure
✔️ Preparing and filing T3 Bare Trust Returns
✔️ Ensuring CRA-defensible reporting

We focus on preventing reassessments, not reacting to them.

Final Thoughts

Being added to title “for mortgage purposes only” can still trigger capital gains tax.
A properly documented and filed bare trust is often the solution — but it must be done correctly.

If your name is on your parents’ property and:

• A sale is coming, or

• CRA compliance is unclear, or

• No bare trust documentation exists

📞 Contact If you have any such requirement before listing property for sale or as soon as you discover that and we will be able to help you prppare proper documentationa dn trail and represent that with CRA if required.