Canada

Trust reporting requirements

Legislation was proposed in July 2018 to expand the reporting requirements for trusts. These requirements are intended to improve the collection of beneficial ownership information in respect to trusts and to enable the Canada Revenue Agency (CRA) to assess tax liabilities for trusts and their beneficiaries.

According to the Fall Economic Statement, released on November 3, 2022, the new requirements are applicable to trusts’ taxation years ending after December 30, 2023. The T3 tax return must disclose the name, address, residency and social insurance number for each trustee, trust beneficiary and settlor of the trust. On March 28, 2024, the CRA exempted certain bare trusts from filing T3 returns unless specifically requested. New draft amendments released on August 12, 2024 expanded exemptions for certain trusts.

The proposed amendments will allow executors and trustees three taxation years to dispose of properties of the graduated rate estate. In other words, the net capital losses incurred in any of the three first taxation years of the estate can be carried back to the terminal year of the deceased. Executors and trustees will have more time for dispositions while benefiting from the loss carry-back opportunity under subsection 164(6) of the Income Tax Act 1985.

Speculation and vacancy tax

The federal Underused Housing Tax Act 2022 focuses on taxing vacant and underused residential housing owned by non-resident non-Canadians whether directly or indirectly owned.

Luxury tax

The federal government released and approved the Select Luxury Items Tax Act for a new luxury tax regime applicable to certain sales and imports of vehicles, boats and aircraft, which came into effect on September 1, 2022.

Disclosure rules for reporting transactions

Mandatory disclosure rules for “reportable transactions”, and “notifiable transactions” (such as the avoidance of the deemed disposition of trust property pursuant to the 21-year rule) and uncertain tax positions received Royal Assent on June 23, 2023.

Recent federal budget highlights

To help individuals purchase their first home, a new Tax-Free First Home Savings Account, an increase to the Home Buyers’ Tax Credit, and also a new “anti-flipping” residential real estate tax, were announced. On June 23, 2022, Parliament passed the Prohibition on the purchase of residential property by non-Canadians Act, which came into force on January 1, 2023.

The disbursement quota rate for charities increased to 5% (from 3.5%) for the portion of property not used in charitable activities or administration that exceeds CAD 1 million.

The most significant measure announced in the 2024 federal budget was the increase in the capital gains inclusion rate from one-half to two-thirds for corporations and trusts, and from one-half to two-thirds on the portion of capital gains realized in the year that exceed CAD 250,000 for individuals for capital gains realized on or after June 25, 2024. The lifetime capital gains exemption was increased from CAD 1,016,836 in 2024 to CAD 1,250,000 on eligible gains realized on or after June 25, 2024; the threshold is to be indexed to inflation in 2026 and later years. Coming into force on January 1, 2025 is the Canadian entrepreneurs’ incentive which provides a new capital gains inclusion rate for small business owners (with specified exceptions) for capital gains up to CAD 2 million, to be phased in by increments of CAD 200,000 per year. Further relieving provisions were tabled in September 2024 affecting graduated rate estates and partnerships. Note that the capital gains changes were to go into effect from June 25, 2025. However, on January 31, 2025, the Department of Finance announced that it will defer the implementation date for the increase to January 1, 2026.

The budget made further changes to the draft Alternative Minimum Tax (AMT) legislative proposals, which are intended to prevent higher income Canadians from excessively using deductions, credits, and other tax preferences to reduce their tax bill. Taxpayers will pay either regular tax or AMT, whichever is highest.

Special rules for Employee Ownership Trusts were introduced in the 2023 federal budget to provide an alternative business succession option for retiring business owners to transfer the business to employees. The 2024 budget clarified the conditions that must be fulfilled to claim a temporary tax exemption up to CAD 10 million of capital gains that may be realized when the business is sold to an Employee Ownership Trust.

Canada’s federal income tax rates for 2024 tax year

Apostille Convention in force in Canada

The Apostille Convention entered into force in Canada on January 11, 2024. Competent authorities of certain provinces such as Alberta, British Columbia, Ontario, Quebec and Saskatchewan are exclusively responsible for the authentication and issuance of apostilles for documents issued or notarized in their respective provinces. Global Affairs Canada continues to authenticate and issue apostilles for documents issued by the Government of Canada and for documents issued or notarized in specific provinces and territories. This will greatly facilitate the acceptance of documents, for example, in estate settlements that implicate any of the 120 foreign jurisdictions that have signed the convention.

Provincial and territorial governments develop their own tax laws and policies, but they are generally harmonized with the federal tax legislation. However, the CRA collects and administers income taxes on behalf of the provinces and territories, except for Quebec.

In response to escalating home prices in urban areas, low rental vacancy rates and high rental prices, British Columbia enacted, in 2018, a speculation and vacancy tax on residential properties in major urban areas. Subsequently, in 2022, Ontario introduced the Vacant Home Tax.

In Nova Scotia, The Non-resident Deed Transfer Tax Act 2023 imposes a 5% transfer tax on certain residential properties where more than 50% of the ownership interest in the property is granted to non-residents of Nova Scotia unless certain exemptions apply.

The Supreme Court of Canada in Attorney General of Canada, et al. v. Collins Family Trust, et al., 2022 SCC 26, confirmed that the equitable remedy of rescission is not available to remedy adverse tax consequences by cancelling or unwinding a transaction and restoring the parties to their pre-contractual positions.

On December 16, 2021, the Supreme Court of Canada ended nearly six years of legal challenges by refusing leave to appeal from the Federal Court of Appeal’s judgment in Blue Bridge Trust Company Inc. v. Canada (National Revenue), 2021 FCA 62. The CRA had issued requests for information to Blue Bridge Trust Company Inc. (Blue Bridge) which was the trustee of some opaque Canadian trusts enabling several wealthy French families to save nearly EUR 4 billion in wealth tax. The Federal Court of Appeal upheld the Federal Court’s finding that the requirements for issuing a compliance order under the Income Tax Act 1985 had been met and, consequently, Blue Bridge had to provide disclosure to the French tax authorities.

The Supreme Court of Canada has since heard no further cases dealing strictly with wills, estates and trusts.

In Menard v. Agence du revenue du Québec, 2021 QCCQ 3891, the Quebec tax authority denied the taxpayers the capital gains tax exemption in the context of a tax planning device utilizing a discretionary family trust for multiple capital gain exemptions for family members, including minor children.

The Superior Court of Quebec, in 4258843 Canada v. KPMG, 2024 QCCS 760, held KPMG liable in negligence for damages in not sufficiently informing the client about the tax planning risks.

There have been significant changes in tax legislation for private family businesses. Due to the introduction of the tax on split income (TOSI) rules in 2018, the income-splitting benefits of a trust have primarily been eliminated.

A trust continues to be an effective instrument to multiply the lifetime capital gains exemption (LCGE), because trusts can sell shares of corporations that qualify for the qualified small business corporation exemption. The tax payable is minimized as the gain may be shared among the beneficiaries of the trust (multiplication of LCGE).

Trusts continue to be frequently used in succession planning to transfer wealth to future generations in a tax-efficient manner and can result in a deferral of capital gains.

The use of a trust within the context of a private corporation allows for several benefits, including the control of trust assets (i.e., the shares of a private corporation), the reduction of taxes upon death, and the distribution of trust assets to beneficiaries on a tax-deferred basis.

Although the perception about trusts is that they are only created to achieve tax savings, it is critical to note that trusts can offer significant other non-tax benefits, such as:

• avoiding probate fees;
• protecting assets; and
• maintaining confidentiality.

Federal COVID-19 benefits ended in 2022.

Estate and trust matters are not regulated federally, but fall within the jurisdictional purview of the provinces and territories.

Ontario’s Succession Law Reform Act, R.S.O. 1990, c.S. 26 (SLRA) was amended to expedite and facilitate the probate procedure in Ontario courts by streamlining the probate application process for small estates under CAD 150,000 and allowing electronic filing of probate.

Many of the SLRA amendments affect spouses, such as the increase in spousal entitlement on intestacy: the preferential share has been raised from CAD 200,000 to CAD 350,000. Prior to the amendments, only testamentary dispositions made to a former spouse (because of divorce or annulment of the marriage) were revoked by the death of the testator. If the spouses were merely separated, the bequests or gifts to the separated spouse remained valid and enforceable. The amendments remove the entitlement of a separated spouse under the will, as well as under an intestacy.

As an antidote to the phenomenon of predatory marriages, the repeal of the SLRA provisions that provide for the automatic revocation of a pre-existing will on marriage is a timely measure. This also brings Ontario in line with similar legislative provisions in Quebec, British Columbia, Saskatchewan and Alberta.

In Alberta, the law on non-revocation of a will by marriage also extends to an adult interdependent partnership or common law relationship.

Similarly, in Saskatchewan, The Wills Act, 1996, SS 1996, c W-114.1 was amended with effect from March 16, 2020 to provide that a will is not automatically revoked if the testator entered into a new spousal relationship (marriage or continuous cohabitation for two years) unless the will’s terms explicitly provided otherwise.

Finally, but possibly most significantly, an Ontario legislative amendment has been made regarding substantial compliance for the validity of wills. The Superior Court of Justice is authorized to validate a defective document purporting to be a will when the statutory requirements for formal validity or proper execution have not been respected. Priority is given to testamentary intention.

Manitoba enacted the first validating power in Canada and was copied in most common law provinces. Quebec’s validating power is a partial compliance provision, giving priority to fulfilment of essential requirements over testamentary intention.

The Legislative Assembly of Alberta updated its current Trustee Act on April 29, 2022 to render the creation and management of trusts more efficient.

All provinces and territories in Canada, except Quebec and Manitoba, have probate fees and their own formula for calculation of the fees. The Manitoba government eliminated probate fees effective as of November 6, 2020, as well as provincial sales tax on the preparation of wills.

In June 2022, Alberta introduced the Surrogate Digital Service, a web-based system that modernizes estate administration by allowing probate applications to be completed and submitted online.

In all provinces and territories, a dependant can claim support from the deceased’s estate if they have a status recognized by law, such as a spouse or child or someone who was receiving support at the time of death, such as a former spouse.

In Leblanc v. Cushing Estate, 2020 NSSC 162, the Nova Scotia court considered a de facto spouse as a dependant if the domestic partnership was registered.

De facto spouses have limited and varied rights across Canada. On January 1, 2020, Alberta enacted the Matrimonial Property Act, RSA 2000, c M-8, which provides that property division rules apply equally to married couples and couples in a relationship of interdependence.

On June 30, 2025, the Quebec Act respecting family law reform and establishing the parental union regime comes into force. It provides that de facto spouses who are the parents of the same child will be governed by the parental union regime in the Civil Code of Québec (CCQ). The rules governing legal devolution of an intestate succession will allow the surviving spouse to inherit from the succession of the deceased spouse. Additionally, the surviving spouse is entitled to claim under the rules for compensatory allowance, parental union patrimony and preferential allotment of the family residence.

There have been significant legislative “paradigm shifts” in several provinces in the area of adult decision-making. Quebec’s Bill 18 - An Act to Amend the Civil Code, the Code of Civil Procedure, the Public Curator Act and various provisions as regards the Protection of Persons, in force on November 1, 2022, introduced amendments for the protection and representation of vulnerable persons, notably by modernizing tutorships, creating a system for temporary assistance and imposing reporting obligations for protection mandates. New Brunswick’s Supported Decision-Making and Representation Act, proclaimed in force on January 1, 2024, features a new framework for decision-making. Manitoba enacted the Adults Living with an Intellectual Disability Act on June 1, 2023, which makes significant revisions in terminology and principles.

On rare occasions, the Supreme Court of Canada (SCC) grants leave to appeal in estate matters.

In Threlfall v. Carleton University, 2019 SCC 50, the SCC ordered restitution of pension payments amounting to half a million dollars made by Carleton University to a retired professor, resident of Quebec, who went missing for six years but was found to have died shortly after his disappearance.

In Sherman Estate v. Donovan, 2021 SCC 25, the SCC ruled that the open court principle may be limited to protect privacy but only in exceptional circumstances. In a high-profile case, a couple were found dead in their Toronto home. The estate trustees obtained sealing orders of the probate files of their respective estates to protect the privacy and dignity of the deceased individuals and their family. An investigative journalist successfully appealed the sealing orders, which the Ontario Court of Appeal set aside and which the Supreme Court of Canada upheld. If the protection of an individual’s personal information meets the “high bar” required to obtain a confidentiality order, then the constitutional guarantee of open courts may yield to the extent necessary to prevent a serious risk of harm to the individual’s dignity.

No new cases on wills, estates and trusts have been heard by the Supreme Court of Canada.

An important accounting issue was before the court in Duhn Estate, 2021 ABQB 3, that was affirmed by the Alberta Court of Appeal, 2022 ABCA 360, holding that a competent testator has the right to keep pre-death financial affairs private and confidential. Absent a sufficient evidentiary basis for potential abuse, death does not expose a testator’s pre-death decisions to scrutiny by the beneficiaries.

The Ontario Court of Appeal confirmed the modern approach to cost awards in estate litigation with the release of its decision in McGrath v. Joy, 2022 ONCA 119, reinforcing a trend in other provinces that the court should follow a nuanced approach based on the rules that apply in civil litigation versus the traditional approach that costs of all parties are borne by the estate.

In Dallas Estate (Re), 2024 BCSC 213, the court denied the costs of an executor, who was also a beneficiary using his executor position for personal interests, being paid from the estate.

In Santos et al. v. Coghlan et al., 2023 ONSC 4862, the court denied the use of estate funds for the estate trustees’ litigation costs.

Fitzgerald v. Fitzgerald Estate, 2021 NSSC was a welcome decision released by the Nova Scotia Supreme Court that reaffirms the primacy of beneficiary designations.

Greenstein v. Mutch, 2023 QCCS 2342, reinforced the principle that reimbursement of legal fees incurred by a liquidator and a trustee is the rule and its denial an exception. The fundamental criteria for reimbursement is good faith and respect of the boundaries of one’s role.

The most common devices prevailing in estate planning continue to be trusts, holding companies and multiple wills and situs wills.

While the changes in 2016 to the trust tax rules (for example, TOSI) have significantly eroded the attraction of trusts for estate planning purposes, trusts still serve desirable purposes. Discretionary trusts continue to be used in estate freezes and provide a degree of asset protection against matrimonial and creditor claims. Trusts, such as the “alter ego” or “joint partner”, also serve as will substitutes, and avoid probate fees and a lengthy probate process. They also provide an effective alternative to a power of attorney in case of incapacity and are useful in planning for disabled beneficiaries.

Holding companies continue to be used to earn investment income at a lower tax rate. Care must be taken to implement appropriate post-mortem tax planning to avoid double taxation on death.

Multiple wills strategies enjoy popularity in some provinces such as Ontario and British Columbia where probate fees are high. Nova Scotia’s probate legislation has rendered this strategy ineffective.

With a great number of wealthy clients owning property in several jurisdictions, the need for situs estate planning has grown exponentially.

In Quebec, practitioners are increasingly using marriage contracts as situs will substitutes. Since gifts mortis causa, which are assimilated to testamentary dispositions, may be made in a Quebec notarial marriage contract, spouses whose domicile or nationality is not that of Quebec may make mutual gifts of both movable and immovable property.

Increased real estate values have prompted two initiatives. One concerns the need for farmers to re-evaluate the division of their assets to avoid an inequitable estate plan and the other is the incentive to provide for lifetime gifts to children to enter the real estate market.

The interest in digital currencies such as bitcoin has created new challenges for estate planners.

The digitization of the law and the adoption of new technologies spurred on by COVID-19 reactions are new and continuing phenomena in the estate and trust practice (see below, Section 2.6).

Charitable giving has become more prevalent in clients’ estate plans whether because of increased wealth or favourable tax benefits or both. A popular option is a gift of publicly traded securities with accrued unrealized gains.

During the COVID-19 pandemic, most of the provinces and territories, except Nova Scotia, Prince Edward Island, Yukon, Northwest Territories and Nunavut, implemented temporary execution of wills and powers of attorney by audio-visual communication technology. Ontario, Saskatchewan, Manitoba and British Columbia have made remote execution of estate documents permanent.

Quebec was one of the first jurisdictions to authorize the remote execution of notarial acts, such as a will. However, on October 24, 2023, Quebec adopted An Act to Modernize the notarial profession and to promote access to justice. Subsequently, interpretation guidelines were issued by the Board of Notaries for the application of remote signing.

British Columbia was the first Canadian jurisdiction to allow electronic wills to be signed and stored completely digitally without need for a printed original paper copy or a wet signature.

Estate and trust matters are not regulated federally, but fall within the jurisdictional purview of the provinces and territories.

See above, Section 2.2.

In S.A. v. Metro Vancouver Housing Corporation, 4 SCC 2019, the SCC affirmed the principle that a discretionary trust interest does not count as an asset of the beneficiary receiving government financial assistance.

In Yared v. Karam, 2019 SCC 62, the SCC ruled on the interaction of the Quebec rules governing the trust patrimony with the mandatory rules on the “family patrimony”.

Two cases in British Columbia, Waslenchuk Estate, 2020 BCSC 1929, and Quinn Estate v. Rydland, 2019 BCCA 91, concluded that “pour over” clauses in British Columbia wills are invalid, illustrating the pitfalls that cross-border situations may engender. Yet, in MacCallum Estate, 2022 NSSC 34, the Nova Scotia court held that the pour-over to an amendable secret trust was valid.

In Walters v. Walters, 2022 ONCA 38, the Court of Appeal had the opportunity to clarify the limits on powers of an estate trustee granted by the term “absolute discretion”. The British Columbia Court of Appeal in Pirani v. Pirani, 2022 BCCA 65, overturned the lower court decision that interfered with the trustees’ decisions because they were not made in good faith.

Traditionally, both in the common law and the civil law, courts do not interfere in cases where trustees are granted powers to be exercised in their discretion unless the trustees fail to act fairly and in good faith, which includes the consideration of extraneous factors. Quebec courts have reinforced the judicial non-interventionist policy with respect to the exercise of discretion by trustees: Moore v. Moore, 2021 QCCS 11 and Corbin v. St. Pierre (Succession de Lelièvre), 2021 QCCS 911.

Peripherally related to the jurisprudence on discretionary powers is Greenstein v. Mutch, 2021 QCCS 4228. The issue in this case was whether capital gains resulting from the disposition of shares held by the testamentary trust be considered as capital or revenue. The Superior Court of Quebec concluded that civil law is the controlling law with regard to trust administration, not tax law. For trust law purposes, capital gains constitute capital while for tax law purposes, they constitute revenue. While the terms of the will conferred upon the trustees a discretionary power to derogate from these generally applicable rules by determining what is to be treated as capital or revenue, the trustees had declined to exercise this discretionary power.

The family paradigm is the centerpiece of Quebec succession law. Recent judicial pronouncements, in the context of divorce and de facto spouses, have endorsed the shift in the family paradigm to reflect today’s society. The Quebec Court of Appeal in Succession de Charpentier, 2022 QCCA 660, recently overturned the lower court’s decision that subsidiary legacies to family members of a former husband had lapsed by virtue of Article 764 of the CCQ, which provides that a legacy to a spouse is revoked by divorce. The holding of the Court of Appeal served to enhance the principles of freedom of willing and actual testamentary intention.

The Quebec Court of Appeal in Succession de Spiric, 2024 QCCA 84, upheld the lower court decision that ruled that a Costa Rican notarial will in Spanish of a Quebec domiciliary was valid and enforceable and had the effect of automatically revoking a prior Quebec notarial will, without the need for any express mention of revocation in the former will. Despite the fact that the testator had not mastered the Spanish language, his comprehension of the language was sufficient and did not affect the validity of the will.

There were a number of substantial compliance will decisions rendered across Canada that illustrate the extent of the judicial validating power.

In Quebec, in the decision of Succession de Blanchet v. Succession de Fournier, 2023 QCCA 987, a notarial will which was invalid for non-observance of the special formalities required for a blind person to sign a notarial will was validated as a will made in the presence of witnesses pursuant to Article 714 of the CCQ.

In the unreported decision of Succession de Tomas Feininger, S.C.M, 500-14-062515-226, July 18, 2022, a computer printout of a codicil, signed by the testator but not witnessed, was validated and probated pursuant to Article 714 of the CCQ, thus setting new parameters in validation of “testamentary wishes” in this hyper-digital age.

In the unreported decision of Grattan v. Grattan, released on February 1, 2023, the Ontario Superior Court of Justice, validated a document as a will prepared by a lawyer and returned by the testator to the lawyer in PDF with minor corrections without signing the document. Under Ontario’s new statutory curative provision, the court found the document was authentic and represented the fixed and final intentions of the deceased.

Re Clarke Estate, 2023 BCSC 103, describes the factors that courts in British Columbia will use to determine whether to exercise their authority under the curative provision of the Wills, Estates and Succession Act, SBC 2009, Chapter 13 to declare a document that does not comply with statutory formalities for a will to be effective as the deceased’s will.

In Tam v. Tam Estate, 2024 BCSC 1561, the British Columbia Supreme Court varied the mother’s will to address the gender-based discrimination that influenced the distribution of her estate, most of which went to her son, to increase the daughter’s share of the estate.

The Ontario decision, Alger v. Crumb, 2023 ONCA 209, held that a general revocation clause in a will was not effective to revoke designated beneficiaries of registered retirement income fund plans and a tax-free savings account plan because it did not relate expressly to the plans in accordance with section 52(1) of the Succession Law Reform Act.

The Superior Court of Justice of Ontario in The Estate of William Robert Waters v. Gillian Henry et al., 2024 ONSC 4490, has ruled that a woman’s care worker must return CAD 2.85 million to the estate of the woman’s deceased husband in which the wife had a life interest. The court concluded it would be unconscionable if the money was not returned to the estate since the husband had improperly gifted his wife’s money to the care worker.

The Quebec Court of Appeal, in Diamond Provencher v. Adam, 2024 QCCA 404, reaffirmed that an individual cannot assist a testator with the drafting of a will in which he himself is a legatee without rendering the will null and void pursuant to Article 727 of the CCQ.

Ross Estate (Re), 2024 BCSC 459, confirms that despite the requirement for capacity to marry being a lower threshold than capacity to execute a will, the testator had neither the capacity to marry nor to make a valid will in favour of his new wife.

The Manitoba decision of Drewniak v. Smith, 2023 MBKB 109, provided an excellent summary of the law on undue influence and suspicious circumstances, in a matter attempting to set aside a power of attorney on the basis of lack of capacity or undue influence.

Two cases, one from Saskatchewan and the other from Ontario, dealt with the application of the “armchair rule”; the former, Gilchrist v. Gilchrist, 2023 SKKB 187, and the latter, Mansour v. Girgis, 2024 ONSC 1611, took a broader approach to the interpretation of the rule.

The British Columbia case of Matossian Estate v. Clark Estate, 2024 BCSC 247, provides an excellent summary of relevant case law on spoliation/destruction of documents.

In the Matter of the Estate of the Late Iuliana Danilevici Lupu, 500-17-121840-220 S.C.M., February 21, 2023, the Superior Court of Quebec applied the judgment rendered by the Quebec Court of Appeal in Succession de Glickman, 2021, QCCA 260, that upheld the validity of a suspensive condition until the liquidation of the estate was completed, thus suspending the automatic transmission of ownership to the heirs that occurs at death, which is a primordial principle of the law of successions in the civil law tradition.

A decision rendered by the Tax Court of Canada in Fiducie Historia v. The King, 2024 CCI 76, has significant implications for the interpretation of Article 1275 of the CCQ, which requires that there be an independent trustee in office, by holding that the beneficiaries had not usurped the trustees’ powers, and that even if Article 1275 had been contravened, it was a relative nullity, contrary to the prevailing jurisprudence that held it was an absolute nullity.

Quebec courts have recently rendered several judgments setting the parameters and criteria for access to, or issuance of, a notarial act, notably, a notarial will. The leading decision is Succession de Plante, 2022 QCCA 604, where the Court of Appeal reiterated the fundamental nature of the notary’s professional secrecy that does not die with the testator and will only be lifted in exceptional circumstances. The criteria affirmed in this decision were applied in Succession de Goldin, 2023 QCCS 3481 to order disclosure of the deceased’s previous will which had been revoked.

See above, Section 2.5.

See above, Section 2.6.