Entity Setup
Setting Up a Canadian Trust? Beware the 21-Year Rule & New Anti-Avoidance Measures
Recent proposed changes expand anti-avoidance rules for trust transfers, tightening the longstanding 21-year expiry to prevent indefinite deferring of capital gains.
By NomadicTax Research Team • 5-8 min read • April 25, 2026
## The 21-Year Rule – A Quick Recap
The **21-year deemed disposition rule** means personal trusts are treated as having disposed of capital property every 21 years after their creation—and every 21 years thereafter. The rule prevents trusts from indefinitely deferring capital gains. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/tm-mf-en.html?utm_source=openai))
## What’s Changing: Anti-Avoidance of 21-Year Rule
- Budget 2025 proposes to **broaden the anti-avoidance rule** to cover not just **direct trust-to-trust transfers**, but also **indirect transfers of trust property to other trusts**, for example via corporations owned by new trusts. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/tm-mf-en.html?utm_source=openai))
- This applies to transfers of property that occur **on or after "$“Budget Day” — the day the budget was presented**. This ensures that newly structured arrangements to diffuse the 21-year expiry won’t escape the rule’s reach. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/tm-mf-en.html?utm_source=openai))
## Why It Matters for Trusts and Estate Planning
- Anyone using trusts to hold or move assets across generations must understand that **wrapping assets in new trusts** won’t reset the clock. Deferred gains will catch up.
- This impacts tax planning scenarios involving **family trusts**, **inter-trust loans**, or **corporate wrappers** seeking to avoid the 21-year mark.
## Actions to Consider Now
1. **Review any trust restructurings** planned for 2026 to see if they involve indirect trust-to-trust property transfers—these may now trigger earlier deemed dispositions.
2. Keep close tracking of trusts' creation dates and property transfers. If a trust is approaching its 21-year anniversary, prepare to pay taxes on accrued gains unless property is transferred under safe exemptions.
3. Consult a professional before setting up new trust structures that push or reset ownership, as these may be targeted by this expanded rule.
## Example Scenario
- *Family Trust A* is created in 2005. In 2026, the trustee moves property to *Family Trust B*, indirectly, via a family corporation. Although transfer was indirect, under the proposed rule, the new arrangement won’t defeat the 21-year rule: A is deemed to have disposed of the property at its 21-year point.
- If the trust owner expected to avoid gain taxation by “splitting” into multiple trusts, that strategy may no longer work.
**Bottom line**: If you're setting up or managing trusts, the proposed expansion of the anti-avoidance rule means past loopholes using interposed entities may be plugged. Planning needs to be more transparent and conservative regarding timing and ownership structure.
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**Category**: Entity Setup
TaxHome: Canada
Author: NomadicTax Research Team
ReadTime: 5-8 min
Published: true