The 21-Year Rule in a Nutshell
- Under subsection 104(4) of the Income Tax Act, personal trusts must realize accrued gains every 21 years (a “deemed disposition”) to avoid indefinite tax deferral. (canada.ca)
- Budget 2025 introduced amendments (particularly subsection 104(5.8)) to ensure that indirect trust-to-trust transfers (via a Holdco or similar) don’t reset the 21-year clock. New trusts inheriting property under these rules must assume the 21-year anniversary of the original trust. (budget.canada.ca)
What’s Changed:
- Indirect transfers: If a trust transfers property tax-deferred to a beneficiary (e.g. a corporation) and another trust holds that corporation, the 21-year date of the transferee trust becomes that of the original trust. (fin.canada.ca)
- Effective date: These changes apply to transfers occurring on or after November 4, 2025. (budget.canada.ca)
Compliance Rules for Trusts
Trustees and trust administrators should note:
- Schedule 15 (Beneficial Ownership Information) must be filed with the T3 Trust Income Tax Return, except for certain trusts with assets below thresholds. Bare trusts may be exempt until specific dates. (canada.ca)
- Starting tax years ending on or after December 31, 2025, trusts with FMV ≤ $50,000 (or ≤ $250,000 in certain assets) and meeting conditions may avoid filing certain detailed schedules. (canada.ca)
Examples
| Scenario | What happens under new rules |
|---|---|
| A trust (Trust A) owns shares in a corporation, transfers property to the corporation, and a new trust (Trust B) owns the corporation after Nov 4, 2025 | Trust B inherits Trust A’s 21-year anniversary — cannot reset to later date. |
| Bare trust holding investment accounts under $250K in FMV for a year ending Dec 31, 2025 | Likely exempt from filing Schedule 15 with T3 for that year. |
Action Steps
- Review trust structures to identify whether any indirect transfers have occurred since November 4, 2025. Adjust planning accordingly.
- Check asset values and types to see if Schedule 15 can be avoided under statutory thresholds.
- Update trust documentation and file required returns by deadlines. Many trust tax years end December 31 — T3 return due 90 days after fiscal year-end.
- Consult advisors if planning trust-to-trust or trust-to-corporation transactions — new rules limit avoidance techniques.
Takeaway: Casual trust restructuring or use of holding corporations no longer reset the 21-year clock. Trustees must be transparent, compliant, and deliberate in structuring transfers and reporting.