- Every trust is 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.
- Alter ego and joint partner trusts instead have their deemed disposition at the relevant death.
- The T3 return is due no later than 90 days after the trust's tax year-end.
If you are a trustee or a beneficiary, you may wonder who pays tax on what a trust earns, and when. A trust files a T3 return with the Canada Revenue Agency (CRA), and how any British Columbia-specific tax applies depends on your situation, so it is worth confirming with an accountant.
This article covers the main timing rules: the 21-year rule, the special treatment of some trusts for older settlors, estates, bare trusts, and the T3 return. Rates and your own figures depend on the facts, so an accountant should confirm the numbers.
This article covers the law of British Columbia.
Two basic kinds of 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. The kind of trust affects which tax rules apply.
The 21-year rule
Every trust is 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. A deemed disposition can trigger tax on gains the trust has not actually cashed in.
Trustees of a long-term trust should know this date well ahead of time, because they may need cash to pay the tax or a plan to distribute property.
Alter ego and joint partner trusts
Some trusts for older people follow a different timeline. The table sets out the main features.
| Trust | Who it is for | Deemed disposition |
|---|---|---|
| Alter ego trust (CRA code 336) | Created after 1999 by a settlor aged 65 or older, who receives all trust income during their lifetime and is the only person who can receive income or capital during that time | On the settlor's death |
| Joint spousal or common-law partner trust (CRA code 335) | Created after 1999 by a settlor aged 65 or older. The settlor and their spouse or partner receive all income until the later of their deaths, and only they can receive income or capital before then | On the later death of the settlor and spouse or partner |
For these trusts the deemed disposition day is the death, not the 21-year anniversary, so tax on accrued gains is deferred to that death. A trust is not treated as an alter ego trust if it elects so on its T3 return for its first tax year. Rollover transfers between certain trusts, including between alter ego trusts and between joint partner trusts, carry exceptions to the receiving trust's deemed disposition timing.
Estates and the 36-month rule
An estate qualifies as a graduated rate estate (GRE) only for up to 36 months after death. It must designate itself as the GRE on its first T3 return for a tax year ending after 2015 and give the deceased's SIN. After 36 months it stops being a GRE.
Estates that stay open a long time should watch that deadline. A lawyer or accountant can tell you what changes once GRE status ends.
Bare trusts
A bare trust is different again. The Income Tax Act does not define it. Under section 104(1), an arrangement may be treated as not a trust where the trustee acts as agent for all beneficiaries. A trustee generally qualifies as agent when it has no significant powers, acts only on the beneficiaries' instructions and only holds legal title.
For 2025 year-ends, the CRA does not expect bare trusts to file a T3 return with Schedule 15. Certain bare trusts may have to file for taxation years ending in 2026 and later, and this is based on proposed Bill C-15 legislation. Because that depends on proposed legislation, it is worth confirming the current position with an accountant before relying on it.
Filing the T3 return and what to do next
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 within the same 90 days. Leaving out the required information on reportable entities of the trust (Schedule 15, beneficial ownership information) may result in a late-filing penalty.
- Identify what type of trust you have and when it was created.
- Note the trust's year-end and the 90-day filing date.
- Mark the 21-year date, or the relevant death, on a calendar.
- For an estate, track the 36-month GRE limit.
- For a bare trust, check with an accountant whether a T3 return is now required.
- Ask an accountant about current tax rates and any BC-specific effects.
Frequently asked questions
Do trusts pay tax in British Columbia?
A trust files a T3 return with the CRA, and it is due no later than 90 days after the trust's tax year-end. How much tax applies, including any British Columbia effects, depends on the type of trust and the figures, so an accountant should confirm it.
What is the 21-year rule?
Every trust is 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.
Does the 21-year rule apply to alter ego trusts?
No. For alter ego and joint partner trusts, the deemed disposition happens on the relevant death instead, which defers tax on accrued gains.
When is the T3 return due?
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.
Sources
- 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
- CRA – Important updates to the trust reporting requirements for the 2025 taxation year — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a wills & estates question
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