Can I hold Ontario property in a family trust?

Yes, Ontario property can be held in a family trust. A trust is a legal arrangement where a trustee holds legal title to the property for the benefit of named beneficiaries. Trusts are used in real estate for a range of purposes: estate planning, creditor protection, income splitting, and anonymity of ownership.

Setting up a trust that holds real property involves several steps. The trust deed (a legal document establishing the trust's terms) must be prepared, and title to the property must be transferred or initially vested in the trustee. The transfer triggers Ontario land transfer tax and may trigger a deemed disposition for income tax purposes (unless a rollover or other tax mechanism applies), so careful tax planning is required before transferring appreciated property into a trust.

Once held in a trust, the property is subject to ongoing tax considerations. The 21-year deemed disposition rule requires that trust property be deemed disposed of at fair market value every 21 years, which can trigger capital gains tax. Trusts also pay the highest marginal income tax rate on retained income, which limits some of the tax benefits.

Trusts must be properly administered, with annual tax filings and trustee decision-making in accordance with the trust deed and fiduciary duties. A real estate lawyer and a tax accountant should both be involved in setting up and maintaining a real estate trust.