2 June 2026 STEP Roundtable Q. 2, 2026-1090991C6 - Filing Requirements of a Testamentary Trust

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: 1. Where the Will of an individual creates a testamentary spousal trust and the terms of the Will provide that on the death of the spouse any remaining property is to be held in a second testamentary trust for the benefit of the remainder beneficiary, what are the filing requirements of the second trust while the spouse is alive? 2. On what date would the 21-year deemed disposition rule in subsection 104(4) apply to the second testamentary trust? 3. How would the response in 2. change if instead of a spousal trust, the first generation testamentary trust is for the benefit of a non-spouse lifetime beneficiary?

Position: 1. The second testamentary trust will be required to file a T3 Return, including Schedule 15, for each taxation year ending after its creation date in which it does not meet any of the exemptions listed in subsection 150(1.2). 2 and 3. The deemed disposition date will be determined in accordance with the rules in subsection 104(5.8).

Reasons: 1. 2. and 3. Words of the Act.

2026 STEP CRA Roundtable – June 2, 2026

QUESTION 2. Filing Requirements of a Testamentary Trust

It is common for a testamentary spousal trust (or “first generation trust”) to provide that, after the death of the spouse, any remaining property be held in one or more separate trusts for the benefit of the successor or remainder beneficiaries (each a “Successor Trust”). For example, when a surviving parent dies, it is not uncommon for the remaining trust property to pass to Successor Trusts for each of the children and/or more remote issue to be held by the trustees until they reach an identified age.

Where the terms of a testamentary spousal trust as described in subsection 70(6) of the Act(footnote 1) provide the trustees with the discretion to make capital distributions to the spouse while alive, it is possible that no property may be in the trust at the time of the spouse’s death so that the Successor Trusts are never funded.

1. Assuming a Successor Trust is not a trust described in any of paragraphs 150(1.2)(a) to (r), while the surviving spouse is alive, is the Successor Trust required to file a T3 Trust Income Tax and Information Return (“T3 Return”), including Schedule 15, Beneficial Ownership Information of a Trust (“Schedule 15”)?

2. Assuming the following facts, can the CRA advise when the 21-year deemed disposition rule in subsection 104(4) would apply to the Successor Trust?

• the estate of the first spouse to die is created on July 1, 2015 (i.e., the date of death);
• the testamentary spousal trust meets the conditions in subsection 70(6), and is funded on August 1, 2015;
• the surviving spouse passes away on April 15, 2025;
• the Successor Trust is created on February 15, 2026; and
• both the testamentary spousal trust and Successor Trust are resident in Canada.

3. Would the answer to Part 2 change if, instead of a testamentary spousal trust, the first generation trust is for the benefit of a non-spouse lifetime beneficiary?

CRA Response

Part 1.

A testamentary trust is defined in subsection 108(1) as a trust that arose on and as a consequence of the death of an individual, subject to certain conditions. Consequently, the estate of a deceased individual and other trusts created under the terms of the will of that individual will generally be testamentary trusts, subject to certain exceptions.

Although a testamentary trust arises on and as a consequence of the death of an individual, it must be noted that the definition of “testamentary trust” in subsection 108(1) does not contemplate the timing of the creation of such a trust.

It has been our long standing view that, generally, trusts created out of the residue of an estate arise on the death of an individual. As stated in CRA document 2016-0634871C6, ultimately it is a question of legal fact as to when such trusts are established and this will determine the filing requirements for tax returns under the Act.

That said, there may be situations where the creation date of a testamentary trust is not concurrent with the testator’s date of death. For example, in the case of a Successor Trust as described in the scenario provided, wherein certain terms of a will may provide that on the death of the first generation income and capital beneficiary (in this case, the spouse or common law partner), the trustee is to divide the remaining property into equal parts to be held in a new trust for the interest of each child, such a trust may be viewed as being created at a later point in time than the testator’s date of death.

Although the CRA has traditionally not attributed any tax consequences to the transition from estate administration to trust administration, the date of the creation of a testamentary trust is relevant for the application of the trust reporting rules in section 150 of the Act and in subsection 204.2(1) of the Income Tax Regulations (the “Regulations”)

Paragraph 150(1)(c) requires a trust to file a return of income in prescribed form and that contains prescribed information for each taxation year of the trust, unless one of the exceptions provided for in paragraph 150(1.1)(b) applies to the trust for the particular taxation year. However, where a trust is resident in Canada and an express trust, or, for civil law purposes, a trust other than a trust that is established by law or by judgement, subsection 150(1.2) denies the application of the exceptions in subsection 150(1.1), unless the trust meets one of the exceptions listed in subsection 150(1.2) for the particular taxation year.

The exceptions provided for in subsection 150(1.2) also serve another purpose: where applicable, they also exempt a trust from the additional information reporting requirements imposed by subsection 204.2(1) of the Regulations.

Where none of the exceptions listed in subsection 150(1.2) apply to that trust for a particular taxation year, the trust will be obligated to file a return of income pursuant to paragraph 150(1)(c) in respect of that taxation year. Additionally, section 204.2 of the Regulations will apply to the trust. Accordingly, the Successor Trust will be required to file a T3 Return, including Schedule 15, for each taxation year ending after its creation date in which it does not meet any of the exceptions listed in subsection 150(1.2). In a situation where the Successor Trust does meet one of the exceptions listed in subsection 150(1.2), consideration would need to be given to the exceptions in subsection 150(1.1).

Part 2.

Subsection 104(4) provides for a deemed disposition date for every trust.(footnote 2) However, generally, where capital property, land included in inventory, Canadian resource property or foreign resource property is transferred at a particular time by a trust to another trust in circumstances in which subsection 107(2) or 107.4(3) or paragraph (f) of the definition of disposition in subsection 248(1) applies, the rules in subsection 104(5.8) will apply for the purposes of, inter alia, subsection 104(4).

For the purposes of subsection 104(4), the first day (the “disposition day”) that ends at or after the transfer that would be determined in respect of the Successor Trust is deemed pursuant to subsection 104(5.8) to be the earliest of:

• The 21-year deemed disposition date of the testamentary spousal trust ending at or after the transfer, as determined by subsection 104(4), which is April 15, 2046 (21 years after the date of death of the surviving spouse) [104(5.8)(a)(i)(A)]; and
• The 21-year deemed disposition date of the Successor Trust ending at or after the transfer, as determined by subsection 104(4), which is February 15, 2047 (21 years after the creation of the Successor Trust) [104(5.8)(a)(i)(B)].

This will be April 15, 2046, which is 21 years after the date of death of the surviving spouse in this case.

Part 3.

Where the first generation trust is a trust other than a testamentary spousal trust (i.e., created under the terms of the will of an individual for a person other than a spouse or common law partner), for the purposes of subsection 104(4), the first day (the “disposition day”) that would be determined in respect of the Successor Trust is deemed pursuant to subsection 104(5.8) to be the earliest of:

• The 21-year deemed disposition date of the first generation trust ending at or after the transfer, as determined by subsection 104(4), which is July 1, 2036 [104(5.8)(a)(i)(A)]; and
• The 21-year deemed disposition date of the Successor Trust ending at or after the transfer, as determined by subsection 104(4), which is February 15, 2047 [104(5.8)(a)(i)(B)].

This will be July 1, 2036, which is 21-years after the date of death of the testator in this case.

Dawn Dannehl
2026-109099

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. The Act means the Income Tax Act R.S.C 1985 c.1 (5th Supp.) as amended from time to time and consolidated to the date of this document and, unless otherwise expressly stated, every statutory reference herein is a reference to the relevant provision of the Act.

2. The definition of “trust” in subsection 108(1) does not include certain trusts for the purposes of, inter alia, subsection 104(4).