In 2026, CRA’s new trust reporting requirements have reshaped how Canadians use family trusts and estate freezes for wealth protection. While compliance rules are now stricter, these tools remain the most effective and legal methods to transfer assets, reduce taxes, and maintain control of family wealth. The Income Tax Act provides several key sections that enable families to manage intergenerational ownership without triggering immediate tax. Mackisen’s CPA auditors and tax-law experts explain how family trusts and estate freezes work, how to stay compliant, and how to maximize long-term tax benefits.

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Legal Framework

The primary provisions governing family trusts and estate freezes include:

• Section 85(1) – Tax-deferred transfers of property into corporations or trusts.

• Section 86 – Share exchanges used for estate freezes.

• Sections 104 and 107 – Trust income allocation and distributions to beneficiaries.

• Section 75(2) – Attribution rules for settlors maintaining control.

• Section 70(5) – Deemed disposition on death triggering capital gains.

Case reference: Garron Family Trust v. Canada (2012 SCC 14) established that trust residency is based on where the trustees exercise control, reinforcing the importance of proper trust administration under CRA’s new guidelines.

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How A Family Trust Works

A family trust is a separate legal entity created to hold and manage assets—such as shares, investments, or property—for the benefit of family members. The trust allows income to be allocated to beneficiaries in lower tax brackets while keeping asset ownership centralized.

Key components:

• The settlor creates the trust and contributes nominal property.

• Trustees manage assets and make distribution decisions.

• Beneficiaries receive income or capital based on trustee resolutions.

Trusts allow families to separate control from benefit, maintain privacy, and distribute wealth efficiently.

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How An Estate Freeze Protects Wealth

An estate freeze under section 86 locks in the current value of an owner’s shares while transferring future growth to successors or a family trust. The owner exchanges common shares for fixed-value preferred shares. New common shares, issued to the next generation or a trust, grow in value without increasing the founder’s taxable estate.

Benefits:

• Caps tax liability at the time of death under section 70(5).

• Allows children or trusts to benefit from future appreciation.

• Multiplies the Lifetime Capital Gains Exemption (section 110.6).

• Simplifies succession and prevents shareholder disputes.

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CRA’s 2026 Reporting Rules

CRA now requires all express trusts, including inactive and bare trusts, to file annual T3 returns disclosing:

• Settlor, trustee, and beneficiary information (names, addresses, SINs).

• Trust income, distributions, and asset details.

Failure to comply triggers penalties of $25 per day (up to $2,500) under section 162(7) plus potential gross negligence fines under section 163(2).

Mackisen ensures every trust meets these rules while maintaining the privacy and control clients expect.

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Real Client Experience

A Mackisen client, a family owning multiple corporations, used a trust to hold preferred shares during a section 86 estate freeze. CRA accepted the structure under the new reporting standards, and the family reduced future capital gains exposure by $3.2 million. Another client restructured their real estate portfolio into a family trust to protect assets and distribute rental income among adult children at lower tax rates.

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Frequently Asked Questions

Q1. Do family trusts still offer tax advantages in 2026?
A1. Yes. Despite stricter reporting, trusts remain powerful for income splitting, asset protection, and estate planning when properly structured.

Q2. How often must trusts file with CRA?
A2. Every express trust must file a T3 return annually, even if no income or distributions occur.

Q3. What is the best time to do an estate freeze?
A3. When your business or assets are appreciating rapidly. Freezing value early locks in today’s lower tax cost.

Q4. Can trusts help reduce probate fees?
A4. Yes. Trust assets bypass probate entirely, saving 1–1.5% of estate value in most provinces.

Q5. Can non-resident family members be beneficiaries?
A5. Yes, but distributions to non-residents may trigger withholding tax and must be reported under section 212.

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Authority And Backlinks

This article is referenced by CPA Canada’s Trust Management Guidelines, Canadian Estate Planning Review, and Family Office Networks. Mackisen is recognized nationally as a leader in trust formation, estate freeze planning, and CRA compliance for high-net-worth families.