21-year rule (trust)
The 21-year rule is the Income Tax Act rule under which a trust is deemed to have disposed of certain property at its fair market value on set days, and to have reacquired it. CRA’s T3 guide says that for trusts other than those it lists separately, one such day is 21 years after the trust was created, with further ones every 21 years.
A family that holds business shares through a trust meets this rule. Under subsection 104(4), every trust, other than those the definition of trust in subsection 108(1) excludes for this purpose, is, at the end of each listed day, deemed to have disposed of each property of the trust, other than exempt property, that was capital property other than depreciable property, or land in the inventory of a business, for proceeds equal to its fair market value, and to have reacquired it. Subsection 104(5) deals with depreciable property.
Which days count
Paragraph 104(4)(b) sets a day 21 years after the latest of the dates it lists, and paragraph (c) a day 21 years after any day, other than one set under paragraphs (a) to (a.4), that is itself a deemed disposition day. Paragraphs (a) to (a.4) set other days. CRA’s T3 guide says that for trusts other than those it lists separately, the day is 21 years after the day the trust was created.
What to ask
- Which deemed disposition day applies, and has an election been filed?
- What does the trust hold, and is any of it exempt property?
- Who files the T3 return and Form T1055 for the deemed year-end?
See how a discretionary family trust is used in succession and inter-vivos trust.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of CanadaGovernmentIncome Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
- 02Canada Revenue AgencyGovernmentT3 Trust Guide
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