Is a testamentary trust taxed differently from an inter vivos trust in Canada?

Not anymore, for most trusts. Before 2016, a testamentary trust (one created by a will, on death) benefited from the same graduated tax brackets an individual uses, while an inter vivos trust (created during someone's lifetime) was always taxed at the top marginal rate with no personal exemption. That gap made testamentary trusts a popular income-splitting tool — a family could create several from one estate to multiply the low brackets.

Since 2016, the Income Tax Act taxes most testamentary trusts the same way it taxes inter vivos trusts: at the top marginal rate, with no basic personal exemption, regardless of how the trust was created. The main exceptions are a graduated rate estate, which can access graduated rates for a limited period right after death, and a qualified disability trust, which can also access graduated rates for the benefit of an eligible disabled beneficiary. Outside those two carve-outs, calling something a "testamentary trust" no longer buys it a lower tax rate.

This matters most for older wills drafted before 2016 that still contemplate multiple testamentary trusts as a tax-splitting strategy — that plan generally no longer works and should be reviewed with current rules in mind.