Income Tax

All income earned by Canadians is subject to taxation federally and provincially. Federal tax rates increase with income levels, ranging from 15% to 33% of gross income. Depending on the province, high-income earners may pay tax approaching 50% of their income.

Most forms of income splitting (a mechanism used to limit the taxes payable by families) have been eliminated by the federal government.

Taxation of Trusts

Trusts and estates are considered individual taxpayers under the Income Tax Act, RSC 1985, c 1 (5th Supp), and income earned by trusts and estates is taxable. Currently, inter vivos and testamentary trusts that are resident in Canada are typically taxed at the highest marginal rate.

Several types of trusts are exempted from paying the highest graduated tax rate, including:

• graduated rate estates, which are taxed at marginal rates for 36 months following death, after which the highest marginal rate will apply;
• qualified disability trusts, being testamentary trusts for which the beneficiary is eligible for the Canadian disability tax credit; and
• subject to certain restrictions, grandfathered inter vivos trusts settled before 18 June 1971.

Overview of Tax Credits and Deductions

The Canada Revenue Agency (CRA) administers Canada’s tax system and recognises deductions and tax credits for expenses related to family and childcare, medical expenses, education, and saving for retirement. Tax deductions reduce taxable income, whereas tax credits reduce tax otherwise payable. Tax credits are generally non-refundable, meaning they do not create a tax refund independently. However, unused credits may sometimes be carried forward. Tax credits and deductions can significantly reduce income taxes payable.

Taxation of Gifts and Bequests

Gifts and testamentary gifts are not typically subject to taxation in Canada. However, an increase in the gift’s value or income earned by it may be taxable.

Taxation of Estates

Although Canada does not impose an estate or inheritance tax, assets distributed through probate may be subject to estate administration taxes (also known as “probate fees”).

Probate fees vary by province and territory. Manitoba and Quebec do not charge probate fees, although a filing fee may apply. In Ontario, estates valued at less than CAD50,000 are exempt from probate fees; in British Columbia and the Yukon, the exemption applies to estates valued at less than CAD25,000. Generally, probate fees are based on the value of assets distributed under the probated will. For example, in Ontario, probate fees are calculated at CAD15 per CAD1,000 for the value of the assets exceeding CAD50,000; in Alberta, the Northwest Territories and Nunavut, however, probate fees are capped for estates valued at CAD250,000.

Taxes are generally payable on income earned by the deceased up to the date of death, unless an exemption applies. On death, assets are generally deemed to have been disposed of at fair market value, which may trigger capital gains tax. Tax applies to 50% or 100% of the capital gain, depending on the asset, and may be deferred depending on the beneficiary.

Certain exemptions apply to estate assets. For example, the sale or transfer of real property typically results in a significant capital gain, but a principal residence exemption allows the transfer or sale of an individual’s principal residence without triggering a taxable capital gain. A capital gain tax will typically apply, however, to any additional residences owned by the deceased.

A cumulative lifetime capital gains exemption also applies to the disposition of qualified property, such as small business corporation shares. Only half of the capital gain must be included in the deceased’s taxable income. As of 2026, the lifetime capital gains exemption is CAD1.25 million.

Estates are also exempt from paying capital gains taxes on property transferred to the deceased’s spouse or common-law partner (or a trust established for the spouse’s or partner’s benefit) that would otherwise arise where the property’s fair market value exceeds its adjusted cost base. Tax will be deferred until the sale of the asset or the death of the surviving spouse.

A similar exemption applies to registered investments – including Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) – transferred to eligible beneficiaries, including:

• the deceased’s spouse or common-law partner;
• a financially dependent underage child or grandchild; or
• a financially dependent child or grandchild who is mentally or physically infirm.

The CRA distinguishes between legitimate tax planning, tax avoidance and tax evasion. Tools to minimise the tax burden of an individual or estate while complying with the Income Tax Act include the following.

• Registered Education Savings Plans (RESPs) – tax on investment income is deferred in RESPs until funds are withdrawn for eligible post-secondary education expenses.
• Tax-Free Saving Accounts (TFSAs) – contributions to TFSAs are not tax deductible, but any income or capital gains earned are not taxed when withdrawn.
• Spousal RRSPs – one spouse may contribute to the other spouse’s RRSP to facilitate income splitting, particularly where one spouse is in a higher tax bracket.
• Splitting pension income between spouses – a spouse who earns more income may share up to 50% of their pension income with the other spouse, excluding the Canada Pension Plan (CPP) and Old Age Security (OAS).

In contrast, tax avoidance is inconsistent with the spirit of the law and may contravene the Income Tax Act, including the general anti-avoidance rule. The consequences of engaging in tax avoidance may include a CRA audit, reassessment of tax liabilities, and denial of tax benefits.

Tax evasion goes further by violating the Income Tax Act, and may include under-reporting income or falsely reporting tax credits or deductions. Tax evasion is criminally punishable in Canada.

The CRA monitors trends in tax avoidance and consults the Department of Finance to develop new tax avoidance measures.

For individuals who own property, pre-immigration tax planning may be advisable. When immigrating to Canada, individuals are generally deemed to have disposed of their property and reacquired it at fair market value. As a result, only the appreciation in value that occurs after immigration is taxed. In addition, Canada does not currently have pre-immigration trust rules.

Exit planning is also advisable for individuals who emigrate from Canada. When an individual ceases to be a Canadian resident, the Income Tax Act generally imposes a departure tax through a deemed disposition and deemed reacquisition of most types of property at fair market value. Certain types of property, such as Canadian real property, are excluded from the departure tax. However, an individual may elect to include otherwise excluded property in the departure tax calculation if doing so would offset capital gains that would otherwise arise on their departure.

It is also possible to defer payment of the departure tax. Usually, an election must be filed by April 30 of the year following emigration, although the Minister has discretion to accept late elections. If payment is deferred, the individual must generally post security. If it is not deferred, in most cases it will be due by April 30th of the year following the individual’s departure. If the individual passes away between October of the year they emigrate and the following April 30th, the departure tax will instead be due within six months of the individual’s death.

Non-citizens and non-residents who purchase real property in Ontario must pay a 25% non-resident speculation tax (NRST). Agricultural land and commercial property are exempt, as are transfers of property to foreign spouses of Canadian citizens and certain foreign nationals. A rebate of the NRST may be available if the purchaser becomes a permanent resident within four years, or is a foreign national working in Ontario. As of 1 January 2025, a 10% NRST also applies to the purchase of residential properties in Toronto.

In specific regions of British Columbia, including Vancouver, an NRST of 20% is payable. Nova Scotia also imposes a 10% non-resident deed transfer tax, increased from 5% effective 1 April 2025, which applies to residential property if the purchaser does not move to the province within six months.

As of 1 January 2023, non-citizens and non-residents may not purchase residential property in Canadian metropolitan areas until 1 January 2027, although there are exceptions for temporary residents, work permit holders, refugees, and non-Canadian spouses and common-law partners. The prohibition does not apply to vacant land.

The federal government imposed a 1% nationwide tax on vacant property owned by non-resident non-Canadians from 2022 to 2024, but this tax was eliminated in 2025. However, British Columbia continues to impose a speculation and vacancy tax of 2%.

Income Tax

The overarching tax legislation in Canada is the Income Tax Act, which has been in force since 1 January 1949. While the Income Tax Act appears to be permanent, Canadian tax law is amended regularly through the federal budget and other bills.

Common Practices to Limit Tax Payable on Death

Practices that reduce or avoid estate administration taxes are a common feature of estate planning in Canada.

Multiple wills

In order to avoid the payment of probate fees on all assets included in one’s estate plan, many clients will use multiple wills. A primary will addresses the distribution of real property and potentially other assets requiring probate, whereas a secondary will addresses the distribution of all other assets. A tertiary will may also be used to deal with corporate interests.

The authority of an estate trustee named in multiple wills to distribute assets under a will not admitted to probate will typically be recognised if the trustee has obtained a grant of probate for one of the other wills.

Joint ownership

Another common mechanism for transferring assets without exposing an estate to probate fees is joint ownership. Assets held jointly will pass by right of survivorship to a surviving joint owner.

When an estate plan includes joint ownership, it is important that the testator’s intention to gift the beneficial interest to the joint owner is clearly expressed. If assets pass to the testator’s adult child by right of survivorship, they are presumed to be held on a resulting trust in favour of the estate under the common law, unless there is evidence of an intention to gift the beneficial interest to the survivor.

Beneficiary designations

Beneficiary designations allow certain assets to “pass outside” an estate to the intended beneficiary, without being distributed under a testamentary document requiring probate. Life insurance policies, tax-free savings accounts and RRSPs are commonly transferred using beneficiary designations. Tax benefits may arise where a married or common-law spouse is named as the designated beneficiary of a registered savings plan.

Canada is part of the growing list of countries that have entered into the Foreign Account Tax Compliance Act Intergovernmental Agreement (FATCA IGA), designed to increase disclosure by foreign tax authorities to the US Internal Revenue Service (IRS). Currently, the FATCA IGA relieves the CRA from direct compliance with FATCA and instead requires domestic banks to report accounts with US indicia (such as American-born account holders or US dollar bank accounts) to the CRA, which then forwards relevant information to the IRS. Information shared with the IRS through FATCA is subject to confidentiality protections and limitations under the Canada–United States Tax Convention.

Canada has also adopted the OECD’s Common Reporting Standard (CRS) to combat cross-border tax evasion. Holders of accounts with Canadian financial institutions (including corporations) can be required to certify their residence status for tax purposes and provide supporting documentation. Combined with the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (signed in 2015), the CRS facilitates the exchange of account information with other tax jurisdictions. Under the Tax Conventions Implementation Act, 2002, S.C. 2002, c. 24, Sched. 6, this information must be treated as secret, and may only be used for tax purposes.

Canada is also committed to adopting the OECD’s Crypto-Asset Reporting Framework, and released draft legislation to amend the Income Tax Act in 2025. The framework requires crypto-asset service providers to make an annual report relating to crypto-asset transactions and customers. Canada is also scheduled to begin exchanging crypto tax information internationally in 2028.

Legislation requiring the creation of a federal beneficial ownership registry in Canada for federal corporations was passed in November 2023. The registry is intended to increase transparency and deter financial crimes. Most provinces and territories already have beneficial ownership registries, except Alberta, the Northwest Territories and Nunavut.

Canada has a range of family structures, including common-law relationships, marriages involving second spouses (due to either death or divorce), and lone-parent families.

Canada’s population is also ageing. As baby boomers die, Canada is expected to experience its largest intergenerational wealth transfer. However, because Canadians are also living longer, they may require more funds for personal care, leaving less wealth for transfer to loved ones.

Technology is also prominent in Canada. Individuals of all ages are accumulating digital assets, which should not be neglected when creating or amending estate plans (see 2.7 Transfer of Assets: Digital Assets).

Estate planning should include consideration of where beneficiaries are located and whether benefitting foreign beneficiaries with interests in a Canadian estate will expose them, or the estate, to taxation not applicable to Canadian residents. Each jurisdiction has its own rules governing estates, testamentary gifts and inter vivos gifts. A transaction or corporate interest that does not trigger taxation in Canada may be taxable in another jurisdiction. For example, if a testamentary gift is made to an individual living in a jurisdiction that imposes inheritance tax, the gift may be subject to that tax.

Estate distributions to beneficiaries who reside outside of Canada are also generally subject to withholding tax. The estate representative must determine the applicable withholding rate based on the beneficiary’s country of residence. If Canada does not have a tax treaty with that country, tax is generally withheld at 25% of the gross payment. However, tax treaties may reduce this rate. For example, under the Canada–US Tax Treaty, the withholding rate on certain income distributions to US resident beneficiaries is 15%.

While most Canadian jurisdictions recognise testamentary freedom, testators’ legal and moral obligations may restrain their right to benefit whomever they choose after death. Moral obligations typically take a backseat to legal obligations.

An example of a legal obligation that may restrict testamentary freedom is the requirement for testators to provide for their surviving married spouses upon death. Provincial legislation gives a surviving spouse the right to claim a share of family property, even if a will purports to do otherwise.

Legislation in British Columbia also recognises the rights of adult children to inherit their parents’ estates, in the absence of a valid and rational reason for disinheritance, requiring the courts to consider evidence regarding the reasons for not benefitting family members. Courts are also authorised to vary the distribution of an estate on this basis.

In Ontario and other provinces, adult children have no right to benefit from their parents’ estates, although disinherited children may seek relief from an estate if they qualify as dependants of the deceased. An adult child may also inherit by successfully challenging their parent’s will.

Prenuptial and Postnuptial Agreements

Contracts can be used by married spouses and common-law partners in Canada to manage spousal disputes that may arise in the future. However, such contracts may not prevent claims against the estate of a surviving spouse.

If each party does not receive independent legal advice when the agreement is executed, it may be unenforceable.

Marital Property

In all Canadian jurisdictions, married spouses have enforceable rights to family property, including assets accumulated during the spousal relationship, subject to certain exemptions. On separation, married spouses have the right to equalisation of net family property equal to one half of the marital property. The matrimonial home typically constitutes marital property, even if it was owned by one spouse before the marriage.

In most provinces, surviving spouses have the option of inheriting under the deceased’s will, or electing to receive an equalisation payment. An equalisation payment may be preferable if the deceased left the spouse inadequate financial support.

In Ontario, British Columbia and the Yukon, bequests left to the deceased’s spouse may be void if the parties were separated at the time of death. A bequest is also revoked in Ontario, British Columbia, Alberta, Saskatchewan, Manitoba and the Yukon if the deceased and their spouse were divorced.

As noted in 1.2 Exemptions, the transfer of capital property from the deceased to a married spouse does not trigger capital gains tax.

Property may be transferred outright to an individual or a trust, or by adding another person as a joint tenant or tenant in common. Joint ownership is a common mechanism for transferring property to the next generation on a tax-deferred basis. Unless the beneficiary of the property by right of survivorship makes the joint property their primary residence, the capital gain on the property will eventually be taxable at the time of its sale or deemed disposition at fair market value, which may occur at the time of death of the other joint tenant. Depending on the Canadian jurisdiction, land transfer taxes may also apply to a transfer of title.

In addition to gifts, assets may be transferred through joint tenancy, testamentary documents, trusts and corporations. Trusts are being used with increasing frequency throughout Canada, as they offer advantages for estate planning, including deferring taxes and sheltering assets from creditors. However, if a trust is not properly constituted, it may be deemed void and the intended advantages may be lost.

For the purposes of succession, digital assets are treated as personal property throughout Canada. Digital assets include records created, transmitted or stored in digital or other intangible forms by electronic means, such as emails, contact information and written documents. Certain digital assets also carry significant monetary value (eg, cryptocurrencies).

Property laws governing digital assets vary by province. In Ontario and British Columbia, executors are not expressly authorised by statute to administer and distribute digital estate assets, making it unclear whether they have the authority to administer digital assets without a court order.

Other provinces have enacted legislation governing access to and administration of digital assets. In Saskatchewan, New Brunswick, Prince Edward Island and the Yukon, legislation expressly authorises fiduciaries to access and administer digital assets. Alberta also has legislation authorising executors to administer “online accounts”.

Digital Estate Planning

If provincial legislation does not expressly authorise an executor to administer digital assets, a digital service provider may refuse to provide access to the deceased’s account or digital assets after probate has been obtained. In that case, the executor can usually obtain access through a court order. An executor may also be able to manage digital assets if the deceased’s will or codicil expressly grants that authority.

Some digital service providers also permit limited digital estate planning. For example, Apple now permits iPhone users to designate “legacy contacts” who receive access to the user’s Apple account after death, including data. Facebook and Google users may also designate legacy contacts.

Various types of trusts are employed in Canada as part of estate and tax planning. The types of trusts that appear most frequently, both during the settlor’s lifetime and as testamentary trusts, include:

• family trusts, the beneficiaries of which are one or more family members entitled to distributions of capital and/or income;
• Henson trusts, which are described in further detail in 8.1 Special Planning Mechanisms;
• insurance trusts, which are typically testamentary trusts used to assist in succession while reducing income tax and probate fees payable on death;
• alter ego trusts, where settlors aged 65 and older may transfer assets into the trust on a tax-deferred basis and remain the sole beneficiary during their lifetime; and
• spousal trusts, which benefit married or common-law spouses and can be used to protect the interests of surviving spouses.

Using foundations to promote philanthropic goals is more common in civil-law jurisdictions. In Quebec, a foundation can exist as a trust or as a legal person, and its use must be related to a cause that is beneficial to society.

When trusts are used for estate planning, they avoid probate tax and preserve the settlor’s privacy. However, enhanced trust reporting requirements have increased the administrative burden of using trusts. Other limitations include that:

• some trusts are subject to statutory eligibility requirements;
• under the attribution rules in the Income Tax Act, trust income and capital gains may be attributed to the transferor; and
• trusts are subject to the 21-year deemed disposition rule.

To establish a valid express trust in Canada, “three certainties” must be present:

• the certainty of intention;
• the certainty of subject matter; and
• the certainty of objects.

The settlor must intend to divest themselves of the trust property, and intend that it be held in trust for the beneficiaries. Title to the trust property must also be vested in the trustee, and all formalities required to create the trust must be satisfied.

Trust arrangements where the settlor is the sole trustee, retains significant discretion over the management of the trust property and/or appoints a trustee who will act solely at the settlor’s direction should be treated with caution, in order to avoid creating a “sham trust”. The Income Tax Act does not permit taxpayers to avoid income tax consequences through the use of trusts where the settlor retains a right of reversion over the trust property and/or the right to direct the distribution of the trust property.

The involvement of a Canadian resident as a beneficiary or trustee of a foreign trust can expose the trust and its beneficiaries to significant Canadian tax liabilities.

A foreign trust may be deemed resident in Canada if a Canadian resident is a beneficiary and a Canadian contributor transfers property to the trust. In that case, the trust is taxable on its worldwide income under the Income Tax Act, and the contributor, the trust and the Canadian resident beneficiaries may be jointly and severally liable for the Canadian tax.

A foreign trust’s residence may also be affected if one of its fiduciaries is a Canadian resident. If the trust is resident in Canada for tax purposes, it will be taxable on its worldwide income. Otherwise, it would generally only be taxed on its Canadian source income.

A settlor should generally not serve as the sole trustee of a trust. Under Subsection 75(2) of the Income Tax Act, income and capital gains from property transferred to a trust may be attributed to the settlor if that settlor retains sufficient control over that property. This rule applies where:

• the trust property may revert to the settlor;
• the settlor retains the power to determine the trust’s beneficiaries; or
• the property cannot be disposed of without the settlor’s consent or direction.

Subsection 75(2) will not generally apply simply because the settlor is one of several trustees, unless the trust terms require the settlor’s consent to trustee decisions. Accordingly, if the settlor is also a trustee, the trust should always have at least two trustees. If the settlor becomes the sole trustee, their powers should be limited to appointing an additional or replacement trustee.

Insurance is the most common means of asset protection in Canada. Life and/or disability insurance can be used to satisfy liabilities (including tax liabilities) arising from a business in the event of the incapacity or death of a business owner, thereby facilitating the succession of a business.

Failing to consider asset protection in an estate plan may frustrate a succession plan. If tax liabilities arising from the deemed disposition of business interests exceed the liquid assets available to the estate, it may be necessary to dissolve the business.

Several factors should be considered in determining the extent of insurance required, including:

• whether the owner’s interest will be purchased in the event of their death;
• whether insurance is intended to benefit beneficiaries who are not receiving an interest in the business (and who may challenge the gift of the company because it disinherits them); and
• whether the business will require additional staff following incapacity or death.

Several options exist for disability or life insurance policies intended to protect a business. Surviving family members, the deceased’s estate, the company itself or a surviving shareholder can be beneficiaries. The insurance policy can be owned by the business owner or the corporation.

Alternatively, holding corporations can be used to protect assets required by a business so those assets cannot be seized by creditors. However, such structures should be implemented when the assets are acquired or developed, to ensure that a creditor cannot claim that they were created to prefer, defeat, hinder or delay creditor claims.

The individual managing a business should create a secondary signing authority on business accounts to ensure the business can continue to operate during emergencies. For example, in a law firm, the managing partner should provide a licensed lawyer or paralegal with signing authority for the firm’s bank accounts, including its trust account, to ensure continued access to client and firm resources if the managing partner is unexpectedly absent. It is also important to keep clear records and files, in order to ease the transition during emergency or planned succession.

For smaller businesses, an owner buyout may be advisable. A buyout structured over an extended period may have fewer tax consequences than an immediate buyout. The use of a promissory note payable over several years may also limit the taxable capital gain resulting from the sale of a business. Starting in 2024, the tax consequences are further reduced for genuine intergenerational business transfers that are either immediate (made within 36 months) or gradual (made over five to ten years).

If the family business is a partnership, a partnership agreement may specify how the business will be divided on dissolution or upon the retirement, incapacity or death of a partner. If the business is operated through a corporation, a shareholders’ agreement may accomplish the same objectives. Where no such agreement exists, the Canada Business Corporations Act, RSC 1985, c C-44 (or provincial equivalents) and provincial partnership legislation may apply.

An “estate freeze” is another option for transferring corporate business interests to family members or facilitating the future sale of a business. Estate freezes can be used to transfer future increases in the value of a family business to family members, who will subsequently receive the business interest. Although estate freezes can be complex and expensive, they can be utilised to facilitate business succession and avoid insufficient funds for the next generation to purchase the interest, while spreading tax liability on the disposition of the business over several years.

Failing to implement a business succession plan may result in unintended consequences, such as the failure of the business if no one is authorised to manage it, or its sale to generate needed liquidity.

When valuing interests in companies, if the rights associated with different classes of shares and different proportions of shares differ, the value of shares in a company may not be the same because of the degree of control they confer. The fair market value of a minority interest in a corporation in Canada, even on a pro rata basis, is less than the same number of shares forming a majority interest.

The term “minority discount” refers to the difference between the fair market value of shares and their pro rata value. The reduced market value results from the inability of a minority shareholder to unilaterally elect the majority of directors, direct the payment of dividends, and make most major decisions affecting the corporation.

Several demographic trends are currently driving an increase in wealth disputes in Canada.

Second marriages and common-law relationships are one such trend. Disputes can arise between a surviving spouse and adult children from an earlier relationship or between a surviving partner and a spouse from whom the deceased was separated but not legally divorced.

As the value of Canadian homes continues to rise owing to inflation, real property is often the primary asset of an estate and may justify estate litigation, depending on its value. In metropolitan areas such as Toronto, the average price of a detached home exceeds CAD1 million.

More Canadians are living longer and may require assistance from family members or professional caregivers. Parents may wish to provide more to relatives who assist them and less to family members who have provided little support. Disgruntled beneficiaries who would otherwise have received a greater share of the estate may commence legal proceedings to:

• challenge the validity of the deceased’s will or inter vivos gifts; or
• require the family member who assisted the deceased to account for transactions carried out on the deceased’s behalf.

Various remedies may be available in wealth disputes, depending on the nature of the dispute and the assets available to fund any compensation or damages awarded.

Parties successful in establishing unjust enrichment, quantum meruit and/or joint family venture claims may be entitled to a constructive trust over certain estate assets.

Where joint assets pass by right of survivorship to a surviving joint tenant, a beneficiary of the estate may assert that the presumption of resulting trust applies and that the survivor holds the assets in trust for the estate.

On hearing dependants’ relief applications, Canadian courts can make a variety of orders, including awarding an interest in assets that would otherwise pass outside an estate – for example, the proceeds of a life insurance policy or other assets subject to a beneficiary designation.

In passings of accounts, courts may make various orders against a fiduciary who has failed to exercise their duties diligently and in good faith.

Canadian trust companies may act as estate trustees, estate trustees during litigation, and attorneys for or guardians of property. The rate at which trust companies are compensated may differ from the rate that fiduciaries are typically able to claim on a passing of accounts, and is often set out in a fee schedule attached to the testamentary document or order appointing the trust company.

Trustees may be personally liable for any loss to the trust property resulting from a breach of fiduciary duty. Trustees acting in good faith may also be held liable for acting honestly upon mistaken facts or misunderstanding, but personal liability is typically limited to the value of the trust property.

Piercing the Corporate Veil

In some situations, it may be unreasonable to limit liability for a corporation to the corporation itself. Canadian courts may “pierce the corporate veil” to hold corporate shareholders and/or directors liable for the corporation’s actions. Courts may be more likely to hold the corporation’s directing mind(s) accountable in situations where fraud, breach of trust and/or an intentional tort has/have been committed by the corporation’s principals, or where the corporation is deliberately undercapitalised in relation to legitimate claims.

Mechanisms to Protect Fiduciaries From Liability

Errors and omissions insurance may be available to trustees, including estate trustees. Such insurance policies typically cover trustees for the costs of defence and indemnity for damages awarded against them, personally, arising from errors and omissions committed during the administration of the trust.

Exculpatory and indemnity clauses purport to protect fiduciaries from personal liability for losses resulting from their administration of a trust or estate. They frequently appear in trust documents and protect trustees who exercise their authority in good faith.

Canadian courts have considered the validity of exculpatory clauses on numerous occasions. Clauses that protect trustees from liability are typically valid, but are not interpreted to protect fiduciaries from fraud and/or dishonesty.

Canadian fiduciaries are bound by the prudent investor rule and the best interests standard, and must invest and administer trust assets in the best interests of the beneficiaries.

Standards are imposed by regulatory bodies and provincial legislation, rather than federal law. In Ontario, for example, a trustee is subject to the Trustee Act and the common law.

Financial advisers in Canada may or may not be held to a fiduciary standard; different standards of care apply depending on the type of assistance provided to clients.

Trustees have an obligation to act reasonably and prudently when investing trust property, and may be held liable for failing to invest trust property prudently, or for failing to maximise the value of trust assets.

Legislation enables parties with a financial interest in trust property to compel fiduciaries to apply for a passing of accounts (essentially a court audit of their administration of the trust). On a passing of accounts, a beneficiary may challenge the administration and seek damages.

As trustees in Canada are guided by the “prudent investor” rule, trust property should not be exposed to unnecessary risk. Investments should involve low risk with steady returns and allow the trust to be administered in accordance with the trust document – for example, they should not restrict the trust’s liquidity when distributions ought to be made. Trust investment should be diversified, taking into account the requirements imposed by the trust document, the nature of the trust property, and current market conditions. The risk of an investment portfolio is considered in its entirety, rather than by individual investments. Diverse portfolios are typically associated with lower risk.

Other Applicable Investment Standards

Modern portfolio theory is a standard of risk-averse investment and uses balanced portfolios to optimise expected returns for a given level of market risk, emphasising that risk is an inherent component of a higher rate of return.

The fiduciary standard may attach to any investment professional required to act in their client’s best interests, such as brokers and insurance agents. However, a suitability standard applies when financial professionals act in a sales capacity, and requires them to act consistently with a client’s stated needs and objectives.

Domicile in Canada

For an individual to be domiciled in Canada, the common law requires that they either:

• were born to parents domiciled in Canada (in which case their domicile of origin will be Canada) and failed to acquire a domicile of choice not subsequently abandoned; or
• acquired a provincial domicile of choice by unequivocally intending to reside there permanently, without a specific and/or temporary reason for doing so.

Factors that the courts may consider when determining domicile include where family members are located and where real property is owned or rented.

If an individual is domiciled in Canada at the time of death, their estate will be administered in accordance with the law of the province where they were domiciled. Probate of the estate should also be sought in that province, unless the deceased held real property in another jurisdiction.

Residency in Canada

Permanent residency is granted on the basis of a points system, using the education, age, language skills and work experience of the applicant. Different programmes may be available to different categories of applicants seeking permanent resident status.

Canadian Citizenship

Canadian citizenship is required in order to obtain high-level security clearance jobs or to vote or run for political office in Canada. There are several requirements for obtaining citizenship, including:

• attaining permanent resident status;
• demonstrating a settled intention to reside in Canada; and
• successful completion of the Canadian citizenship test.

To qualify for citizenship, an individual must normally have been physically present in Canada for at least 1,095 days during the five years immediately prior to the application.

If an individual satisfies the citizenship requirements referred to in 7.1 Requirements for Domicile, Residency and Citizenship, the following mechanisms may help expedite the citizenship process:

• express entry, consisting of the Canadian Experience Class, the Federal Skilled Worker Program and the Federal Skilled Trades Program, which facilitate obtaining permanent resident status more quickly;
• urgent processing, which shortens the processing times where citizenship may be required to apply for/retain employment; and
• ministerial discretion under Subsection 5(4) of the Citizenship Act, RSC 1985, c C-29.

Currently, there is no direct investment-based route to Canadian citizenship, although the Start-up Visa Program permits foreign nationals to become permanent residents if they obtain a commitment from designated entities, such as business incubators, angel investors or venture capital funds.

Minors

A variety of tax credits and government benefits may be available to supplement the cost of caring for minor children in Canada. For example, a parent who did not contribute to the Canada Pension Plan (CPP) while caring for a child under seven may be entitled to CPP benefits. The Child Rearing Dropout Provision provides that the government will contribute to the CPP during periods spent out of the workforce while raising a young child.

Registered Education Savings Plans

A RESP is a popular and tax-effective tool to save for a child’s future. Contributions to a RESP are held in trust for the child, and the federal government will match 20% of contributions (to a maximum of CAD500 per year or CAD7,200 during the child’s lifetime) through the Canada Education Savings Grant. Contributions to a RESP may also be made through the Canada Learning Bond.

RESP contributions are not tax deductible. Tax on income generated by the plan is deferred until withdrawal, typically in the hands of the child, who is often in a lower tax bracket than the contributors.

Trusts benefitting minors

High-income parents may establish trusts for the benefit of their children while they are minors; inter vivos trusts are used less frequently than testamentary trusts. Family trusts may be especially useful for high-income families by deferring taxation and allocating income to family member beneficiaries in lower tax brackets.

Planning for Adults With Disabilities

Government benefits are typically available to adults with disabilities who are unable to work. For example, Canadians with “severe and prolonged” disabilities may qualify for disability benefits through the CPP. Starting in 2025, working-age Canadians who are living with disabilities may also apply for the Canada Disability Benefit, a guaranteed, tax-free income supplement.

Social assistance may also be available for adults with disabilities who are unable to work and have limited assets. Disability benefits received through the government are typically taxable income.

In addition to benefits and grants available to adults living with disabilities, Canadians may be eligible for tax credits and deductions related to disability.

Registered Disability Savings Plans (RDSPs)

RDSPs operate similarly to RRSPs and RESPs. Contributions to an RDSP are not tax deductible, and funds grow on a tax-deferred basis. RDSPs are also associated with government grants and bonds that increase the funds available to adults with disabilities.

Henson trusts

When providing a bequest to an adult beneficiary in a will, the testator may structure the gift as a Henson trust to allow the settlor or testator to provide a benefit to a beneficiary with a disability without negatively affecting their eligibility for government benefits and subsidies. The Supreme Court of Canada endorsed the use of Henson trusts to preserve disability-related benefits in SA v Metro Vancouver Housing Corp, 2019 SCC 4.

If a person possesses the mental capacity to appoint a power of attorney for property and/or personal care, the appointment may have the same legal effect as appointing a guardian, but without the cost and time associated with applying to the court.

Guardians appointed by court order are supervised by the courts and may be required to pass their accounts in respect of the management of the incapable’s property on a periodic basis. As fiduciaries, guardians are accountable for all transactions undertaken on behalf of the incapable person and may be personally liable for any breach of duty owed to the incapable.

In December 2022, New Brunswick became the first province in Canada to enact legislation permitting individuals to appoint different levels of decision-making support.

In Canada, each province and territory has legislation governing powers of attorney and similar incapacity-planning documents. These instruments allow an individual to appoint a substitute decision-maker, often called an attorney, to make property decisions if they later become incapable of managing their property. A person is generally incapable of managing property if they cannot understand information relevant to managing their property or cannot appreciate the reasonably foreseeable consequences of making, or failing to make, a decision.

To create a power of attorney, the donor must usually be at least 18 years old and have the capacity to understand the nature and effect of the document, including the authority being granted, the property affected, an attorney’s duty to account, the donor’s ability to revoke the document while capable, and the risks associated with appointing an attorney.

Powers of attorney must generally be executed in accordance with statutory formalities, often in the presence of one or two disinterested witnesses. In some circumstances, however, a court may validate a power of attorney despite a defect in execution.

Powers of attorney are generally flexible planning tools. A donor may appoint one or more attorneys, require them to act jointly or independently, grant broad authority over property, or limit their authority to specific assets or decisions. A donor may also execute multiple powers of attorney to operate concurrently, so that different types of property are managed by different attorneys.

In most Canadian jurisdictions, an attorney must be at least 18 years old and have capacity.

Government Assistance in Respect of Financial Planning for Longer Lives

Canada Pension Plan

During working years, contributions to the CPP are deducted from the employment income of Canadians. These benefits are normally received at age 65. Individuals who have worked in Canada can elect to begin receiving CPP payments (at a reduced amount) as early as age 60, or can defer their CPP benefits beyond age 65 to receive higher payments.

Spouses can choose to split CPP benefits, so lower income is allocated to each spouse where one would receive considerably greater CPP payments than the other.

The government is also doing more to protect employees’ pension contributions. In April 2023, the Pension Protection Act was enacted to ensure that pension plan deficits have priority over most other creditors if an employer goes bankrupt.

Old Age Security

OAS is available to Canadians who reside in Canada and are aged 65 and over. The OAS benefit is reduced as net income increases.

Guaranteed Income Supplement (GIS)

The GIS may supplement OAS payments for low-income seniors. The income of the applicant and their spouse will be considered in determining eligibility for GIS.

For Canadians without a private pension or assets generating investment income, CPP, OAS and GIS payments may represent the bulk of their retirement income.

Recent and Proposed Changes to Assist Older Canadians

CPP expansion

When the CPP was first established, a higher percentage of Canadians had defined-benefit pension plans that provided regular, monthly payments following retirement. As many Canadians no longer have defined-benefit plans, the CPP is being enhanced to increase the annual payout to 33% of pre-retirement income. The portion of income covered by the CPP is also increasing, allowing Canadians with higher income levels to earn greater CPP benefits.

To fund the CPP expansion, contributions from employers and taxpayers were increased gradually between 2019 and 2025. The Quebec Pension Plan is available to Canadians who only work in Quebec and is being enhanced in a similar manner.

Continued income splitting for seniors

Notwithstanding the elimination of most forms of income splitting, post-retirement income splitting remains an option for Canadian families seeking to limit the rate at which their income is taxed. Seniors remain capable of splitting eligible pension income with a spouse. After age 65, withdrawals from registered retirement income funds and life income funds are eligible for income splitting.

While adoption is a matter of provincial jurisdiction, Canadian law recognises that adopted children have the same rights as biological children, and that biological children do not have priority over adopted siblings regarding child support or entitlement to a share in a deceased parent’s estate on intestacy. When a child is adopted, their legal ties with their biological family are severed and they become a member of the adoptive family. Adopted children have no rights to inherit from their biological parents, although their biological parents may leave them testamentary bequests.

Similarly, children born outside marriage do not have fewer rights than children born to married parents. Canadian law does not meaningfully distinguish between children who are natural, adopted or born inside/outside of marriage.

Same-sex marriage has been recognised in Canada since July 2005 under the Civil Marriage Act, SC 2005, c 33. Same-sex married spouses are afforded the same rights as heterosexual married spouses regarding family and estate law, and tax planning.

In Canada, the criteria for recognising common-law relationships vary provincially and territorially. Under the Income Tax Act, for example, individuals are generally recognised as common-law spouses after living together in a conjugal relationship for at least 12 continuous months. Although cohabitation is usually required, courts have recognised that a common-law relationship may exist even where the parties maintain separate residences.

The rights of common-law spouses also vary significantly across Canada. British Columbia, Alberta, Saskatchewan, Manitoba and the Northwest Territories permit common-law partners to assert interests in family property, whereas other provinces and territories do not. As a result, common-law couples should consider entering into cohabitation agreements to protect their interests in property acquired during the relationship and ensure that appropriate estate planning is in place to benefit the surviving spouse after death.

A surviving common-law spouse may also seek dependant’s support from the deceased’s estate if they satisfy the statutory definition of a dependant. This relief is not restricted to married spouses (see 2.3 Forced Heirship Laws).

For income tax purposes, common-law spouses generally receive the same treatment as married spouses, including eligibility for spousal rollovers, pension income splitting and RRSP transfers.

Making charitable donations can provide considerable benefits to both the charitable cause and the taxpayer. The recipient must be a registered charity in order to receive the desired tax savings.

Federal tax credits of 15% are received for the first CAD200 of a donation, and 29% for donations above CAD200. If an individual earns taxable income in excess of CAD246,752, a 33% tax credit may apply to the amount of a donation in excess of CAD200 to the extent that the donor’s taxable income exceeds CAD246,752. It may therefore be more advantageous to carry forward donations to receive higher tax credits on amounts exceeding CAD200, particularly if the donor’s taxable income is greater than CAD246,752. Donations may also be eligible for a provincial or territorial tax credit.

Gifting Capital Property

Donations to charities need not consist of cash. Capital property is another class of asset that many charities will accept, and it may offer further tax advantages compared with cash donations.

When gifting capital property that has increased in value since its acquisition, the taxpayer can receive a tax credit for the full market value of the property without paying tax on the related capital gain. For example, if stocks or mutual funds are donated to a registered charity, no tax is payable on the increase in value.

Gifts Pursuant to a Last Will and Testament

Naming a charity as a residuary beneficiary of an estate may complicate the administration thereof. In Ontario, for example, legal proceedings involving a registered charity may necessitate the involvement of the Office of the Public Guardian and Trustee (PGT). The PGT, or the charity itself, may require the estate trustee to apply to pass their accounts with regard to the administration of the estate, and has the right to raise objections regarding how estate assets were managed. The beneficiary of a specific bequest or general legacy typically has no such right, meaning that a specific bequest or a general legacy is a simpler way to benefit a charity while obtaining the related tax benefits.

Life Insurance

Several options exist for naming a charity as the beneficiary of a life insurance policy, with the simplest being to name the charity as the beneficiary of the life insurance policy; this will result in a significant payout. Depending on how the policy is structured, it can be used to provide the individual and/or their estate with significant tax savings. Naming a charity as the beneficiary may be suitable if the income tax payable on the terminal tax return is expected to be significant. The life insurance proceeds will not be subjected to income or estate administration taxes.

Another option is to name the charity as the irrevocable beneficiary of the insurance policy. In such cases, the taxpayer may receive tax credits for the premiums paid into the policy. However, even though the charity will ultimately receive the policy proceeds, the taxpayer’s estate will not receive the benefit from the donation for the amount of the proceeds in addition to the premium contributions.