Technical article

Canada: The 21-year Rule and a Trust Meant to Last for Generations

Most Canadian trusts are treated as having sold all their capital property at fair market value every 21 years.

By Neil Solomon · 3 min read

Picture a couple in Toronto who set up a family trust for their children and, one day, their grandchildren. The trust owns shares and a rental building. They hope it can last for sixty years or more. What does Canada say along the way?

The answer is a date, and it comes round every 21 years.

The rule

Most Canadian trusts are treated as having sold all their capital property at fair market value every 21 years. The trust has not sold anything. The tax law pretends it has, and taxes the gain. The trust's cost for each asset is then reset to that value, so the same gain is not taxed again.

The sources put the gain at the trust's top rate. For a trust that keeps income, Canada has no graduated rates, and a tier C figure for Ontario in 2026 puts the combined top rate at 53.53%. A tier B law firm source describes the 21-year rule. A second tier B source, the Chambers guide for 2026, confirms that trusts are subject to it.

One more line from the same Chambers guide says that for a deemed sale at death, either half or all of a gain is taxed, depending on the asset. If that split also applies at the 21-year date, the real bill can be lower than the top-rate figure.

What it can cost

These are examples with round numbers. The figures show the ceiling if the whole gain is taxed at 53.53%, and a lower figure if only half is taxable.

It uses the ceiling, 53.53%, for the whole gain.

Ways it is softened

The tax can be paid in up to ten yearly instalments, with interest and security. Some trusts are outside the rule: spousal trusts, alter ego trusts, joint spousal trusts, and trusts where every interest has vested for good. A graduated-rate estate, a trust formed on a death, keeps lower rates for 36 months.

A trust for children and grandchildren is not on that list.

When no deemed sale happens

A trust run outside Canada, with no Canadian contributor and no Canadian heir, is not a Canadian taxpayer. If a contributor or an heir lives in Canada, a trust abroad can be treated as a Canadian resident, and the 21-year clock could come with it. The next article covers that.

You might say: "My grandchildren do not need to sell. Why does the trust owe tax on a sale that never happened?" It is a fair question. A person's assets are deemed sold at death, and a trust has no death. The 21-year date does the same job on a calendar.

You could mark the 21-year date early. A trustee could ask which assets carry the largest gains, and whether the tax can be paid in instalments. A family could also ask whether one of the trust types outside the rule fits what they want.

The people this touches are the trustees, who file; the children, whose capital is reduced at each 21-year date; and the grandchildren, who would meet at least two dates in a trust that lasts sixty years.

If you have been through a 21-year date, what surprised you most? Share it here, because it may help another family prepare.

Figures are estimates for planning, based on public data. Date read: October 2026.