Alter ego trust
An alter ego trust is a type of trust defined in s. 248(1) of the Income Tax Act by reference to s. 104(4)(a). The CRA describes it as an inter vivos trust under which the settlor is entitled to all the income and is the only person who can receive or use income or capital during their lifetime.
An owner may hold business shares in one, so a buyer or successor can meet it in a share sale or a family handover. The CRA adds that the settlor must meet the age condition in the Act and that the trust must have been created after 1999. See how a family trust can be used in business succession.
What the Act and the CRA say
- Section 73(1) can apply to a transfer of capital property to such a trust where the individual and the trust are resident in Canada, unless the individual elects in their return that it not apply, subject to the conditions in s. 73(1.02)
- The CRA says a trust is not treated as an alter ego trust if it elects so in its first T3 return
- For an alter ego trust, the CRA’s T3 guide says the deemed disposition day is generally the day the settlor died, unless that election was filed
What to ask
If the seller’s shares are held by one, ask for the trust deed and the trustees’ authority to sell, and confirm who the settlor and trustees are. The inter-vivos trust and family trust entries cover related ground.
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
- 03Government of Canada (Department of Justice)GovernmentIncome Tax Act, section 73 (inter vivos transfers by individuals)
Deavo is an advertising and listings platform, not a brokerage, law firm or valuation firm. This page is general information, not legal, tax, accounting or valuation advice, and rules differ by province. Confirm anything you rely on with a qualified professional before you act on it.