How we help
- Discretionary trust deed drafting (settlor, trustees, beneficiary class)
- Trust as growth-share holder in an estate freeze
- Income allocation strategy under TOSI and attribution rules
- 21-year deemed-disposition planning and rollouts
- Section 75(2) attribution-rule navigation
- Multiplied Lifetime Capital Gains Exemption across beneficiaries
- Trust wind-up, restate, or convert into a corporate beneficiary
What a family trust does
A discretionary family trust is a Canadian-resident trust in which the trustees have discretion to decide which beneficiaries receive income or capital, and in what amounts. Properly drafted, the trust holds shares of the family's operating company or holding company, accumulates income year over year, and distributes it as the trustees see fit — usually in a tax-driven pattern that takes advantage of beneficiaries' lower marginal rates and unused exemptions.
Settling the trust
A trust is "settled" when a settlor transfers property to a trustee to be held for the benefit of identified or identifiable beneficiaries. The settlor is typically an arm's-length individual (often a friend of the family) who contributes a nominal amount (typically a gold coin or $10) — this avoids triggering Section 75(2) attribution, which would otherwise attribute trust income back to the settlor. The trust deed defines the beneficiaries (usually a broad class of family members), the trustees' powers, and the term (typically 21 years, with extension provisions).
The settled funds are insufficient to do anything meaningful — the trust then "purchases" growth-class shares of the corporation, usually in the context of an estate freeze. From that point forward, all appreciation of the corporation accrues to the trust, not to the original shareholder.
Annual income allocation
Each tax year, the trustees decide how much of the trust's income and capital is allocated to beneficiaries. Income allocated and made payable to a beneficiary by year-end (Section 104(13)) is taxable in the beneficiary's hands, not the trust's. Income retained in the trust is taxable to the trust at top marginal rates (since 2016, family trusts pay top rates with no graduated-bracket benefit).
Common allocation patterns:
- To adult children in low brackets — eligible dividends allocated to children in school or early-career stages can be taxed at very low effective rates.
- To a spouse aged 65+ — special exception to TOSI for spouses of the principal shareholder.
- To family members in the business — qualifying under the "excluded business" or "reasonable return" TOSI exceptions.
- Capital gains allocated to multiple beneficiaries — each claiming their own LCGE on a portion of a QSBC-share sale.
TOSI screening
The tax-on-split-income rules in Section 120.4 limit dividends-to-family-members planning. Allocations to adult family members in the trust must satisfy at least one of the TOSI exceptions (excluded business, excluded shares, reasonable return, 65+ spouse rule) or be taxed at top marginal rates. The trustees should screen each year's allocation against the rules before declaring distributions.
The 21-year rule
Subsection 104(4) of the Income Tax Act deems a personal trust to have disposed of its capital property at fair market value every 21 years from the date of settlement. The deemed disposition produces a taxable capital gain to the trust on all accrued appreciation — typically a large bill if the trust holds growth shares that have appreciated substantially.
Most family trusts plan around the 21-year rule by either:
- Rolling out the trust's property to beneficiaries before year 21 under Section 107(2), on a tax-deferred basis. The beneficiaries take over the trust's adjusted cost base and continue to hold the shares directly.
- Settling a new trust with the property after year 21, restarting the 21-year clock.
- Triggering the deemed disposition intentionally and claiming the LCGE (if available) to shelter the gain.
Section 75(2) attribution
Section 75(2) attributes income (and capital gains) of trust property back to a contributor if the property may revert to the contributor or pass under their direction. Even modest oversight on the trust deed can inadvertently trigger 75(2) and attribute every dollar of trust income back to the original transferor. Trust deeds must be drafted (and the contributing transactions structured) to avoid 75(2).
How we work the file
Family-trust files at Barrett Tax Law typically run as part of the broader business-owner planning engagement. We draft the trust deed, coordinate the settlement, work with the corporation's accountants on the annual T3 filing and beneficiary allocations, and plan the eventual 21-year rollout. Trust planning is a long horizon — most files are 20+ year relationships.
What to expect when you call us
Your first call is a free, no-obligation consultation with a tax lawyer. We will review the details of your situation, explain your options under the Income Tax Act and CRA administrative practice, and give you a clear, fixed-fee quote if you choose to retain us. Your consultation is confidential, and once we are retained, communications are protected by solicitor–client privilege.
If you retain us, we begin work within 24 hours of being retained.
Frequently asked questions
Is the consultation really free?
Yes. Most cases qualify for a free, no-obligation consultation with one of our tax lawyers. During the call we'll review your situation, explain your options, and give you a clear quote if you decide to retain us.
What does a tax lawyer do that an accountant does not?
A tax lawyer focuses on the legal side of tax — disputes, litigation, and the structuring of transactions in light of the law and anti-avoidance rules. That includes representing taxpayers in CRA audits and objections, appearing at the Tax Court of Canada, defending penalties and director or derivative liability, and designing reorganizations such as section 85 rollovers and estate freezes.
The most practical distinction is privilege. Communications with a lawyer are generally protected by solicitor-client privilege, while communications with an accountant generally are not and can be demanded by the CRA. Where the facts are sensitive or the matter could become contentious, that protection matters.
Lawyers and accountants often work together — the accountant on the numbers and filings, the lawyer on strategy, privilege, and the legal record. Barrett Tax Law regularly coordinates with a client's existing accountant.
Do you serve all of Canada?
Yes. Barrett Tax Law represents clients across Canada. We have offices and local phone lines in Toronto, Calgary, Edmonton, Fort McMurray, Ottawa, Vancouver, and Winnipeg, plus a national toll-free line at 1-877-882-9829.
Who is Barrett Tax Law and what areas does the firm handle?
Barrett Tax Law is a Canadian boutique tax law firm that represents individuals and businesses in their dealings with the Canada Revenue Agency. The firm's work spans CRA audits and disputes, voluntary disclosures, Tax Court of Canada litigation, collections matters, and corporate and estate tax planning.
The firm was founded in 2009 and has represented many thousands of clients across Canada. Its head office is in Concord, Ontario (Vaughan), and it serves clients nationwide. You can reach the firm toll-free at 1-877-882-9829 (1-877-8-TAXTAX).
Most matters qualify for a free, no-obligation consultation, and most are quoted on a fixed-fee basis once scope is understood, so the cost is known before work begins.
What does a tax lawyer do that an accountant cannot?
Accountants prepare returns and financial statements. Tax lawyers represent you when those returns are challenged, audited, or prosecuted — and our communications are protected by solicitor–client privilege, which accountant communications generally are not.
What should I do if I receive a letter from the CRA?
First, identify what the letter is and what it requires. A CRA letter may open an audit, ask for documents, propose adjustments (a proposal letter), confirm a reassessment, or start collection action — and each carries its own deadline and its own implications. Note any date by which a response is required.
Do not ignore it, and be careful about responding off the cuff. What you say and produce can shape your later objection and appeal position, and casual admissions can be difficult to undo. If the letter proposes adjustments or penalties, or if significant amounts are involved, get advice before responding.
A free consultation can help you understand the letter, the deadline, and the right next step. Acting early — while options are still open — is usually far better than waiting until a deadline is near.
Will the CRA criminally prosecute me?
Most CRA disputes are civil. Criminal prosecution is reserved for serious tax evasion or fraud, usually involving deliberate misrepresentation. If you have unreported income, a voluntary disclosure is one of the standard ways to reduce criminal-prosecution risk.
Is the first consultation really free?
Yes. Most matters qualify for a free, no-obligation consultation with an experienced tax lawyer. The consultation is a chance to describe your situation, get a clear sense of the options and likely path, and receive a fee structure in writing before you commit to anything.
You can reach the firm toll-free at 1-877-882-9829 (1-877-8-TAXTAX) to arrange a confidential consultation. The head office is in Concord, Ontario (Vaughan), and the firm serves clients across Canada.
Are my communications with a tax lawyer confidential?
Yes. Communications between you and your lawyer for the purpose of obtaining legal advice are generally protected by solicitor-client privilege, one of the most strongly protected confidences in Canadian law. In practical terms, the CRA generally cannot compel disclosure of privileged communications.
This is an important difference from working with an accountant or other non-lawyer representative, whose communications and working papers can generally be demanded by the CRA. Where the facts are sensitive — unreported income, offshore assets, or potential penalties — that protection can be significant.
Privilege has limits and can be waived inadvertently, so it should be handled with care. A consultation can explain how privilege applies to your particular situation.
How fast can you start on my case?
We typically begin work within 24 hours of being retained. For audit deadlines, Notices of Objection, and other time-sensitive matters, we move immediately.
What if I have unfiled tax returns from many years ago?
We routinely handle 5+ years of unfiled returns. Through the Voluntary Disclosures Program — applied for before the CRA contacts you — we can usually eliminate gross-negligence penalties and limit interest exposure.