Foreign bare trust reporting
My family friend (Canadian resident, Ontario) held approximately CAD $40,000 in a Chinese bank account as fixed term deposit in his name since September 2019. The funds were transferred to him by his father, who was a non-resident of Canada living in China.
At the time of the transfer, the father also transferred a separate lump sum to the friend's sister, who is a resident of China. The arrangement was that both transfers were intended to cover the father's future medical bills and living costs. In practice, the sister handled all actual payments for the father's expenses from funds she received. The friend's account remained untouched, largely because the father survived only two months after making the transfers, leaving insufficient time for the funds to be needed or drawn upon.
The father passed away roughly two months after the transfers. For the next five years, the funds continued to sit in the friend's Chinese bank account while the estate was administered in China. The sister handled all remaining financial obligations of the estate.
In 2025, the siblings agreed informally that each would retain whatever funds their father had originally transferred to them. The friend's share was approximately CAD $40,000. At the same time in 2025, they settled the estate including selling inheritated house.
Additional context: The Chinese bank account is the friend's only foreign asset, and its value has remained below CAD $100,000 throughout. Form T1135 foreign property reporting is therefore not engaged for any year, including 2025 onward. The only potential tax is on interests earned on this cash while my friend held it.
Key Questions on the cash/fixed deposit held by my friend
- Is this arrangement correctly characterized as a bare trust, and does that mean the friend had no Canadian tax reporting obligation from 2019–2024?
- Given that the friend held legal title but the beneficial owner was a non-resident, is there any Canadian income tax owing on interest earned in the Chinese account during those years?
- Was the estate a non-resident of Canada for tax purposes, given that the sister in China was the active manager and the friend's role was purely passive?
- Does section 94 of the Income Tax Act (deemed residency) apply here, given the contributor (father) was a non-resident of Canada?
- From 2025 onward, what are the friend's obligations regarding Line 12100 interest reporting? Please confirm that Form T1135 is not required given the Chinese account is the friend's only foreign asset and its value is below CAD $100,000.
- Is a Voluntary Disclosure needed for any prior years, or is the bare trust position sufficient to explain the absence of prior reporting?
- As a conservative alternative to the bare trust position, should the friend simply file T1 adjustments on foreign interest income for 2019–2024 (Line 12100)?
Thanks in advance for your help!