- Alter ego and joint partner trusts must be created after 1999 by a settlor aged 65 or older.
- Instead of the 21-year deemed disposition, tax on accrued gains is deferred to the settlor's death, or the later death of the settlor and partner.
- The T3 return is due 90 days after the trust's year-end, and trustees must invest prudently under the BC Trustee Act.
Some older people in British Columbia set up a trust during their lifetime to manage their property and plan for what happens later. Two special kinds, the alter ego trust and the joint spousal or common-law partner trust, get their own tax treatment under federal law.
This article explains who qualifies, how these trusts differ from other trusts for tax purposes, and what trustees need to keep in mind. Tax and trust planning depends heavily on your facts, so a lawyer or accountant should confirm how this applies to you.
This article covers the law of British Columbia.
Who qualifies for these trusts
An alter ego trust (CRA code 336) is created after 1999 by a settlor aged 65 or older. The settlor must receive all of the trust's income during their lifetime and must be the only person who can receive income or capital from the trust during that time.
A joint spousal or common-law partner trust (CRA code 335) is also created after 1999 by a settlor aged 65 or older. The settlor and their spouse or common-law partner receive all income until the later of their deaths, and only those two can receive income or capital before then.
| Feature | Alter ego (336) | Joint partner (335) |
|---|---|---|
| Settlor | Aged 65 or older, trust created after 1999 | Aged 65 or older, trust created after 1999 |
| Who receives income | The settlor only | The settlor and spouse or common-law partner |
| Income period | The settlor's lifetime | Until the later of their deaths |
A trust is not treated as an alter ego trust if it elects so on its T3 return for its first tax year.
An inter vivos trust, not a testamentary trust
A testamentary trust is generally created on and as a result of an individual's death. An inter vivos trust is any trust that is not testamentary, and that includes alter ego and joint partner trusts.
This matters because these trusts are set up and operate during the settlor's life. They are separate from an estate, which may qualify as a graduated rate estate for only up to 36 months after death.
The 21-year rule and the deferral to death
Every trust is generally deemed to dispose of most capital property at fair market value on the day 21 years after the latest of January 1, 1972, the trust's creation day and certain other determined days. This is the 21-year rule.
Alter ego and joint partner trusts are treated differently. Their deemed disposition day is the death of the settlor (alter ego) or the later death of the settlor and spouse or common-law partner (joint partner), not the 21-year anniversary. Tax on accrued gains is therefore deferred to that death.
Rollover transfers between certain trusts, including between alter ego trusts and between joint spousal or common-law partner trusts, carve out exceptions to the receiving trust's deemed disposition timing. If a transfer between trusts is being considered, get tax advice first.
This article does not set out trust tax rates, and you should not assume the trust avoids probate fees. Ask a lawyer or accountant about both.
Filing and reporting duties
The T3 return must be filed no later than 90 days after the trust's tax year-end, which is March 31 for a December 31 year-end. Any balance owing should be paid in the same 90 days.
Leaving out the specified information on the trust's reportable entities (Schedule 15, beneficial ownership information) may result in a late-filing penalty.
Trustee duties and what to do next
Under the BC Trustee Act, a trustee may invest trust property in any form of property or security in which a prudent investor might invest, but not in a manner inconsistent with the trust. When investing, the trustee must use the care, skill, diligence and judgment that a prudent investor would use.
- Confirm the settlor's age and the trust's creation date meet the requirements.
- Check that the trust terms limit who can receive income and capital.
- Decide with an accountant whether to elect out of alter ego status on the first T3 return.
- Note the 90-day T3 deadline and gather Schedule 15 information.
- Keep records of investment decisions and the reasons for them.
- Speak with a lawyer before moving property between trusts.
Frequently asked questions
Can anyone set up an alter ego trust?
No. The settlor must be aged 65 or older, and the trust must be created after 1999. The settlor must also be the only person who can receive income or capital from it during their lifetime.
Is an alter ego trust a testamentary trust?
No. An inter vivos trust is any trust that is not testamentary, and that includes alter ego and joint partner trusts.
When is tax on the gains paid?
For an alter ego trust the deemed disposition happens at the settlor's death, and for a joint partner trust at the later death of the settlor and partner, rather than at the 21-year anniversary. A trust that elects out of alter ego status is a separate question to raise with an accountant.
When is the T3 return due?
No later than 90 days after the trust's tax year-end, with any balance owing paid in the same period. Missing Schedule 15 information may lead to a late-filing penalty.
Sources
- Trustee Act, BC Laws — bclaws.gov.bc.ca
- CRA – Types of trusts — canada.ca
- Income Tax Act s. 104 — Justice Laws (federal)
- CRA – When to file a trust's T3 return — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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