21-year trust forecaster
Canadian discretionary family trusts face a deemed disposition at fair market value every 21 years under s.104(4) of the Income Tax Act. This calculator projects the tax bill so trustees can plan distributions in advance.
How this is calculated
- 1.Current FMV: $1,000,000
- 2.Adjusted cost base: $250,000
- 3.Years to anniversary: 10
- 4.Projected FMV at anniversary: $1,000,000 × (1 + 5%)^10 = $1,628,895
- 5.Capital gain at deemed disposition: $1,628,895 − $250,000 = $1,378,895
- 6.Taxable portion (50% inclusion): $689,447
- 7.Estimated tax at 53.53% trust rate: $369,061
- 8.Net value after tax: $1,259,833
Trusts can avoid the deemed-disposition trigger by distributing property out to beneficiaries before the 21-year mark. The distribution is a tax-deferred rollover under s.107(2), shifting the cost base (and future tax liability) to the beneficiary.
Figures shown are approximate, calculated from current publicly-available statutes and standard formulas. Final amounts depend on your specific circumstances — assets in your name versus jointly held, beneficiary designations, debts, province-specific exemptions, and applicable tax credits. For numbers you can act on, a Canadian accountant or licenced estate planner can verify against your actual situation.
Frequently asked questions
What is the 21-year rule for Canadian trusts?
Under Income Tax Act s.104(4), most discretionary family trusts created during life are deemed to dispose of all their capital property at fair market value every 21 years. The trust pays tax on the resulting capital gain even though no actual sale occurred. The first deemed-disposition event happens on the 21st anniversary of the trust's creation, and recurs every 21 years thereafter.
Does the 21-year rule apply to testamentary trusts?
Yes for trusts established by will, but with timing differences. The 21-year clock generally starts at the testator's death (when the testamentary trust is created), not when the will is signed. For some Graduated Rate Estates (GREs), special rules apply for the first 36 months, but the 21-year disposition still eventually occurs.
How do trustees avoid the 21-year deemed disposition?
By distributing the trust property out to beneficiaries before the 21-year mark. The distribution is a tax-deferred rollover under s.107(2), with the beneficiary inheriting the trust's adjusted cost base. The trust avoids the deemed gain; the beneficiary takes on the embedded gain and will pay tax only on a future actual sale. Most family trusts are designed with this distribution path in mind.
What rate does the trust pay on the deemed gain?
Since 2016 reforms, most trusts pay tax at the top federal-plus-provincial marginal rate on retained income, including deemed-disposition gains. The exception is Qualified Disability Trusts (QDTs), which preserve graduated rates. This calculator uses the standard top combined rate by province.
Should I plan the rollout in advance?
Strongly recommended. Distributing $1M+ of property out of a trust requires coordination with the beneficiaries' own tax planning, possibly multiple beneficiaries, and the trust's own annual filings. Most planning starts 3-5 years before the 21-year mark to allow staged distributions. A Canadian estate-planning lawyer or tax-accountant team typically leads this work.
Are there exceptions to the 21-year rule?
Yes. Spousal trusts and certain other specified trusts (alter-ego trusts, joint-spousal trusts for individuals 65+) have modified deemed-disposition rules tied to the spouse's death rather than a 21-year anniversary. These structures avoid the standard 21-year trigger but face their own deemed-disposition events.