14 May 2024

Private Client Comparative Guide

O'Sullivan Estate Lawyers LLP


At O’Sullivan Estate Lawyers LLP, our years of practical experience with complex domestic, cross-border and multi-jurisdictional matters, combined with a deep understanding of your unique goals and objectives, enable us to provide bespoke plans that achieve exceptional solutions.
Private Client Comparative Guide for the jurisdiction of Canada, check out our comparative guides section to compare across multiple countries
Canada Family and Matrimonial
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1 Legislative framework

1.1 Which legislative provisions govern private client matters in your jurisdiction?

Canada is a federal country and is composed of 10 provinces and three territories. Property matters fall under provincial and territorial jurisdiction, including succession to property, trusts and matrimonial property. Income tax is under both federal jurisdiction and provincial and territorial jurisdiction. Divorce falls under federal jurisdiction under the Divorce Act (Canada). In Ontario, there are several major legislative acts which pertain to private clients, including the Succession Law Reform Act, the Estates Act, the Estates Administration Tax Act, the Trustee Act and the Family Law Act, which govern:

  • succession to property on death, including by will and on intestacy;
  • the administration of the estates of deceased persons;
  • powers of attorney and guardianships for incapable persons and substitute decision making; and
  • trustee law and matrimonial property, including equalisation of property on death of the first spouse.

1.2 Do any special regimes apply to specific individuals (eg, foreign nationals; temporary residents)?

There is no 'two-tiered' system which differentiates based on status. However, recently Ontario and British Columbia have introduced additional land transfer tax that applies to foreign buyers. In Ontario, there is a 15% tax on the value of the consideration for a residential property in the Greater Golden Horseshoe area – which includes the city of Toronto and certain surrounding areas – which is acquired by individual persons and certain entities who are not citizens or permanent residents of Canada. British Columbia also has a similar 20% tax in the Vancouver and several other regions.

British Columbia also has a speculation and vacancy tax and a higher rate of 2% applies to foreign owners in certain areas of the province. The city of Vancouver also has an empty-home tax. The recent 2021 Federal Budget has proposed a 1% federal tax on foreign-owned vacant property effective 1 January 2022, with a view to curtailing housing speculation and vacant homes.

1.3 Which bilateral, multilateral and supranational instruments in effect in your jurisdiction are of relevance in the private client sphere?

In order, among other things, to prevent double income taxation, Canada is a party to many bilateral tax treaties. These treaties typically reduce the amount of withholding tax from 25% to lower levels – usually to 15%, but in certain cases to 0%. Another primary purpose of such treaties is to determine tax residence using tie-breaker rules set out in each treaty. With regard to taxation on death, Canada has only two tax treaties: one with the United States and the other with France. Each treaty provides a credit mechanism. With regard to the Canada-US Treaty provisions, estate tax can be credited against Canadian capital gains tax on death and vice versa. Under the treaty with France, a credit is available in certain circumstances for French inheritance tax against Canadian capital gains tax arising on death. Because Canada is one of only a few jurisdictions in the world which has a capital gains regime, as opposed to an estate or inheritance tax regime, it has few tax treaties to prevent double taxation on death, which creates significant challenges in estate planning for Canadian tax residents who own property in foreign jurisdictions or are subject to inheritance or estate tax in another jurisdiction.

Canada ratified an intergovernmental agreement relating to the United States, the Foreign Account Tax Compliance Act (FATCA), in 2014, which imposes certain reporting requirements to the US taxing authority. Canada has also implemented the Common Reporting Standard developed by the Organisation for Economic Co-operation and Development, which from 1 July 2017 requires financial institutions located in Canada to provide certain information on financial accounts and their holders to the Canada Revenue Agency. The first information exchange began on 20 April 2020. Canada is also a party to several international conventions relevant to private clients and estate planning, including the Hague Convention on the Law Applicable to Trusts and on Their Recognition, which is in effect in all Canadian common law provinces. It is also a signatory to the Convention Providing a Uniform Law on the Form of an International Will, and several provinces have incorporated it into their wills legislation.

2 Taxation

2.1 On what basis are individuals subject to tax in your jurisdiction (eg, residence/domicile/nationality)? How is this determined?

Canada taxes on the basis of residence. Canadian residents are subject to tax on their worldwide income. Non-residents of Canada are subject to tax on certain Canadian source income, subject to its international tax treaties. Whether a person is a resident of Canada for tax purposes is generally a question of fact based on whether it is the place where the individual, in the settled routine of his or her life, regularly, normally or customarily lives. Also, an individual will be deemed to be a resident of Canada for the year if he or she sojourns (ie, temporarily resides) in Canada for 183 or more days during that year, but subject to any applicable tax treaty.

2.2 When does the personal tax year start and end in your jurisdiction?

The personal tax year is the calendar year.

2.3 With regard to income: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable taxes?

Income tax is levied on income from all sources, which includes income from employment, business, property and taxable capital gains which are 50% of the total gain. Canada and its provinces and territories tax income. Tax is levied at graduated rates which reach approximately 54% at the top rate in combined federal and provincial rates, depending on the province in which the taxpayer resides for tax purposes.

(b) How is the taxable base determined?

Income tax is based on worldwide income from all sources.

(c) What are the relevant tax return requirements?

For individuals, taxes are due on 30 April of the following year. The date for filing a personal tax return except for those with self-employment income is 30 April; and for the self-employed it is 15 June.

(d) What exemptions, deductions and other forms of relief are available?

Available deductions include, among others:

  • registered retirement savings plan contributions;
  • childcare expenses;
  • employment expenses;
  • business investment losses;
  • union, professional or like dues;
  • disability support;
  • moving expenses;
  • capital losses;
  • capital gains deductions for certain properties; and
  • carrying charges and interest expenses.

Tax credits include:

  • the basic personal amount or 'personal exemption', which every taxpayer can claim and which for 2021 is C$13,808 for taxpayers with income less than approximately C$150,000;
  • age amount;
  • spouse or common-law partner amount;
  • amount for an eligible dependant;
  • caregiver credit;
  • disability amount;
  • tuition, education and textbooks;
  • eligible medical expenses;
  • donations and gifts; and
  • provincial or territorial tax credits.

2.4 With regard to capital gains: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable taxes?

Fifty per cent of capital gains are included in income upon an actual disposition or a deemed disposition and are taxed at graduated rates.

(b) How is the taxable base determined?

To calculate a capital gain or loss, the total of the property's adjusted cost base (ACB) is subtracted from the proceeds of disposition, as well as outlays and expenses to sell the property. The ACB is usually the cost of a property plus any expenses to acquire it and capital expenditures on it.

(c) What are the relevant tax return requirements?

See question 2.3(c). Taxable capital gains are considered income and are reported in a personal income tax return.

(d) What exemptions, deductions and other forms of relief are available?

Exemptions include the principal residence exemption, whereby a principal residence is exempt from capital gains tax on its disposition. A 'principal residence' is a home which a person and his or her spouse and minor child or children ordinarily inhabit. Only one residence in a calendar year can be designated as a principal residence per family unit. From October 2016, in order to claim the exemption, the disposition of the principal residence must be reported.

There is also a lifetime capital gains exemption for certain qualified property. The lifetime capital gains exemption is C$892,218 in 2021. Property that qualifies for the lifetime capital gains exemption includes shares of a qualified small business corporation and qualified farm and fishing property; and for qualified farm and fishing property, it is the greater of the lifetime capital gains exemption and C$1 million.

Capital losses can be used to offset capital gains and lower taxable income. Capital losses can also be carried forward indefinitely. Net capital losses can be carried back up to three years. In certain cases, capital losses can be offset against other types of taxable income other than taxable capital gains, including allowable business investment losses and certain farming losses. There are also certain 'roll-over' provisions whereby capital gains can be deferred on certain dispositions, including:

  • to a spouse;
  • to certain trusts, including alter ego trusts, joint partner trusts and self-benefit trusts;
  • to a corporation; and
  • certain intergeneration transfers involving qualified farming and fishing property.

2.5 With regard to inheritances: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

Canada has no inheritance taxes, which at the federal level were abandoned when Canada adopted a capital gains regime which came into effect on 1 January 1972.

(b) How is the taxable base determined?

See question 2.5(a).

(c) What are the relevant tax return requirements?

See question 2.5(a).

(d) What exemptions, deductions and other forms of relief are available?

See question 2.5(a).

2.6 With regard to investment income: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

The three basic types of investment income are interest, dividends and capital gains.

Interest income is taxed at marginal tax rates and receives no preferential tax treatment. Interest income much be reported in the year it is received and, for investments acquired after 1990, at least annually on the anniversary of the investment.

Dividends received from Canadian corporations receive preferential tax treatment at both the federal and provincial and territorial levels by way of the dividend tax credit.

Eligible dividends are distributions to Canadian resident investors which are subject to the general corporate income tax rate. In general, they include dividends paid by public Canadian corporations and certain flow-through entities such as income trusts and partnerships received by Canadian residents; they have a larger gross-up and dividend tax credit, and are taxed at a lower rate than non-eligible dividends. Non-eligible dividends – also known as regular, ordinary or small business dividends – are:

  • dividends distributed by a public or private Canadian corporation which are not eligible for the higher eligible dividend tax credit; and
  • dividends received from Canadian-controlled private corporations to the extent that their income is subject to tax at the small business rate.

In order to avoid double taxation on the same income, dividends are subject to a gross-up and tax credit mechanism. Dividend income is grossed up by a certain factor depending on whether it is an eligible dividend or a non-eligible dividend. Taxes are paid on the grossed-up amount at marginal tax rates. A federal tax credit and the provincial or territorial tax credit, depending on the applicable jurisdiction, are then subtracted against the amount of taxes calculated.

With regard to the taxation on capital gains, please see question 2.4.

Contributions made to a registered retirement income plan are deductible from income and are not taxed, and income earned within the plan is tax free. When a withdrawal is made from the plan, it is taxable income and tax must be paid at that time.

Income earned in a tax-free savings account is not taxed and may be withdrawn tax free. Tax rules allow for a limited annual contribution to a tax-free savings account, which for 2021 is C$6,000.

Foreign investment income and income and capital gains will generally be taxable in Canada, but may also be taxable in the country of source. Canada has entered into many reciprocal income tax agreements to determine which country will tax such income and the applicable rate of withholding tax. In general, the country in which the income is earned will tax it, and a foreign tax credit will be available in Canada to reduce the Canadian tax otherwise payable on the foreign income.

By way of summary, for 2021, for individuals the tax rates in the Canadian provinces and territories vary as follows:

  • for interest and regular income, from 44.5% to 54%;
  • for capital gains, from 22.25% to 27%;
  • for eligible dividends, from 28.33% to 42.62%; and
  • for non-eligible dividends, from 36.82% to 48.89%.

(b) How is the taxable base determined?

See questions 2.3(b), 2.4(b) and 2.6(a).

2.7 With regard to real estate: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

Provincial transfer taxes are payable when land is transferred for consideration. Some municipalities, including the city of Toronto, also impose a transfer tax. The rates vary from approximately 1% to 2%. Alberta and Saskatchewan do not charge land transfer tax.

Municipalities levy annual property taxes, which include education and other taxes; the rates vary widely depending on each municipality.

If there is a capital gain on a disposition, capital gains tax will be paid, unless a person is a resident of Canada and the principal residence exemption is claimed on it. Non-residents are subject to capital gains tax on Canadian real estate which is considered taxable Canadian property under the Income Tax Act at the same rates as Canadian residents, subject to an applicable tax treaty.

If a non-resident disposes of Canadian real estate, the non-resident must obtain a clearance certificate; otherwise, the buyer will be liable to pay 25% (and in some cases 50%) of the purchase price to the Canada Revenue Agency. The buyer can withhold that amount on closing, subject to any applicable tax treaty.

Rental income must be reported and will be treated differently depending on whether it is considered rental income or business income. If a non-resident owns a property which earns rental income, 25% of the gross property rental income must be remitted each year. An election can be made to pay 25% of the net rental income after expenses, by filing an NR6 form.

(b) How is the taxable base determined?

Land transfer taxes are generally based on the amount paid for the land, but in some cases may be based on fair market value. Provincial and municipal transfer taxes are generally based on the fair market value of the property at a marginal tax rate. The base for annual property taxes varies and is based on the assessed value by the municipality. Property tax includes the municipal rate and the education rate. The municipality determines the revenue it requires and then fixes a rate to raise the required revenue. Many have moved to property assessment based on fair market value. With regard to taxation of capital gains, see question 2.4(b).

(c) What are the relevant tax return requirements?

See question 2.3(c) for personal income tax with regard to reporting capital gains.

Land transfer taxes are generally payable when the land transfer is registered together with the filing of prescribed forms. In general, there is no tax return filed for annual property taxes, which are direct taxes levied by the municipality.

(d) What exemptions, deductions and other forms of relief are available?

With regard to rental income and capital gains, see questions 2.3(d) and 2.4(d). With regard to land transfer taxes, there are often exemptions depending on the province or territory. For example, in British Columbia and Ontario, first-time homebuyers may be eligible for a refund of all or part of the land transfer tax; and in Prince Edward Island, they pay no land transfer tax. In Ontario, there are also exemptions for:

  • certain transfers between spouses;
  • transfers from an individual to his or her family business corporation;
  • transfers of farmed land between family members; and
  • the transfer of a life lease from a non-profit organisation to a charity.

Deferrals may be available when land is transferred between affiliated corporations.

Certain exemptions may also be available for annual property taxes. In Ontario, lands owned by certain charities and non-profit organisations for the relief of the poor and certain types of affordable housing are exempt. There are also property tax rebates for:

  • charities paying property taxes as tenants;
  • a property that houses one or more disabled people or seniors aged 65 or older; and
  • property owned by government bodies.

2.8 With regard to any other direct taxes levied in your jurisdiction: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What are they and what are the applicable taxes?

Direct taxes, including on income and property, fall under provincial and territorial jurisdiction. They include:

  • payroll levies, including health and/or post-secondary education taxes and worker's compensation; and
  • estate administration tax or probate fees paid to probate a will.

The rates for the latter vary. In Manitoba, no fees are payable; and at the higher end, Nova Scotia imposes a fee of up to 1.645% on the value of the estate subject to probate which is calculated as of the date of death.

(b) How is the taxable base determined?

With regard to estate administration tax and probate fees, the taxable base is typically the fair market value of the gross estate, with certain exclusions, including real property outside the jurisdiction. In several provinces, it is possible to have a 'two-will' structure to limit the amount of tax paid to the assets falling under the will which is probated; and assets that do not require probate to administer fall under a second will on which no tax or fees are paid.

(c) What are the relevant tax return requirements?

Reporting required for probate fees and estate administration tax varies by jurisdiction. In Ontario, an estate information return must be filed within 180 days of the date on which the application is made to court for probate, which sets out detailed information regarding the assets of the estate.

(d) What exemptions, deductions and other forms of relief are available?

Ontario estate administration tax is not payable if the value of the estate is C$50,000 or less. Registered mortgages are deductible and real estate outside Ontario is not included in the tax base.

2.9 With regard to any indirect taxes levied in your jurisdiction: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What are they and what are the applicable taxes?

A value-added tax called goods and services tax (GST) is levied by the federal government at a rate of 5%. Five provinces have a harmonised sales tax (HST) which harmonises the GST with provincial sales tax, with rates from 8% to 10%. Others have a separate retail tax (British Columbia, Saskatchewan and Manitoba). Quebec has its own value-added tax called Quebec sales tax. Alberta and the three territories (Yukon, Northwest Territories and Nunavut) do not have their own sales tax. Current sales tax varies from 5% to 15% depending on the jurisdiction.

Other indirect taxes include fuel taxes, tobacco taxes, alcohol taxes, insurance premium taxes and environmental taxes.

(b) How is the taxable base determined?

GST, HST and sales tax are based on the final sale price of a product or service. Some products and services are taxable and others are zero-rated and are therefore not taxable.

(c) What are the relevant tax return requirements?

A GST/HST return must be completed and filed to report and pay the required amount of GST/HST collected on the supply of goods and services. For sales or income of C$30,000 or more during four consecutive quarters, a GST/HST account must be opened. As a registrant, a refund on GST/HST paid on certain purchases and other expenses is available. Due dates for GST/HST returns vary depending on the reporting period.

(d) What exemptions, deductions and other forms of relief are available?

Most goods and services are subject to GST/HST. Certain goods and services are exempt, such as:

  • most health, medical and dental services;
  • day care;
  • many educational services;
  • most financial institution services;
  • most goods and services provided by charities; and
  • certain services provided by non-profit organisations, governments and other public service bodies.

3 Succession

3.1 What laws govern succession in your jurisdiction? Can succession be governed by the laws of another jurisdiction?

Succession to property on death is generally a matter within the jurisdiction of the provinces and territories in Canada. Of Canada's 10 provinces and three territories, 12 are governed under common law and one – the province of Quebec – under civil law. Each jurisdiction has statutory law. In the common law jurisdictions in particular – although to a lesser extent, this can also apply in Quebec – there is case law that deals with succession issues.

For aboriginal Canadians who are subject to the Indian Act, succession to property falls within the federal government's jurisdiction. However, certain First Nations have entered into self-governing agreements that permit the enactment of individualised laws, including those relating to succession.

If the deceased was domiciled in another jurisdiction at the time of death or owned immovable property in another jurisdiction at the time of death, the laws of another jurisdiction could govern the succession to some or all of his or her property. If there is movable property located in another jurisdiction, the law of the domicile may not be effective, as the jurisdiction of the court to determine succession to movables is not exclusive, in which case local law may apply regardless of domicile.

3.2 How is any conflict of laws resolved?

Each province and territory has its own rules with respect to the resolution of conflict of laws issues. However, succession to movables is generally determined by the internal law of the place of domicile of the deceased at his or her death; and succession to immovables is generally determined by the internal law of the place where the property is located (its situs).

3.3 Do rules of forced heirship apply in your jurisdiction?

There is no forced heirship in Canada.

3.4 Do the rules of succession rules apply if the deceased is intestate?

Each Canadian province and territory provides for its own statutory scheme of property division on an intestacy: typically between the testator's surviving spouse and children, if any, failing which to other relatives as specified.

In some provinces, the surviving spouse is allotted a preferential share prior to dividing the estate between spouse and children. In this context, the definition of 'spouse' and 'child' varies between the various provinces and territories.

3.5 Can the rules of succession be challenged? If so, how?

Certain claims may be made against the deceased's estate which would alter the entitlements from the deceased's estate. For example, dependants who qualify as such under the province or territory's laws (typically surviving spouses, which may include de facto spouses as well as married spouses and minor children) may make claims for support if the deceased failed to provide adequate support to the dependant in his or her will or if the intestacy rules do not do so. Also, surviving spouses may be able to make claims to additional or alternative distributions of property from the estate pursuant to laws of the applicable matrimonial property regime. Wills may also be challenged in certain circumstances – for example, if the claimant believes the deceased was incapable of making a will or was unduly influenced to make it.

4 Wills and probate

4.1 What laws govern wills in your jurisdiction? Can a will be governed by the laws of another jurisdiction?

Nine of the 10 Canadian provinces and all three territories are governed by common law. Quebec is the only province in Canada that is part of the civil law regime.

With respect to construction of the will, a testator can generally choose the governing law under conflict of laws rules, as construction of a will is based on what the testator intended.

In considering the material or essential validity of a will, the governing law will depend on the type of asset. For immovable property (real property), the governing law is where the property is located; whereas movable property is governed by the law of the testator's domicile at the time the will was made.

4.2 How is any conflict of laws resolved?

Generally, in Canadian common law jurisdictions, conflicts of laws issues are dependent on the nature of the property. Succession issues regarding a deceased's movable property will be governed by the laws of the deceased's domicile; whereas any immovable property will be governed by the law of the place where the asset is located – the lex situs.

4.3 Are foreign wills recognised in your jurisdiction? If so, what process is followed in this regard?

Foreign wills may be recognised provided that they meet the formal requirements for making a valid will as discussed in question 4.5.

Ontario has statutory conflict of laws rules which broaden the traditional rules. A will is considered valid if, at the time it was made, it complied with the internal law of the place where one of the following applies:

  • the will was made;
  • the testator then was domiciled;
  • the testator then had his or her habitual residence; or
  • the testator then was a national, if there was in that place one body of law governing the will of nationals (Succession Law Reform Act, RSO 1990, cS 26 at s 37).

A foreign will that has already been probated in another jurisdiction outside of a Canadian jurisdiction may also be recognised upon submission to the local court by way of an ancillary grant or a resealing.

4.4 Beyond issues of succession discussed in question 3, are there any other limitations to testamentary freedom?

In general, Ontario law allows for testamentary freedom. One limitation is dependant's relief provisions under the Succession Law Reform Act (Ontario), which allow certain persons with a relationship to the deceased – including spouses or former spouses, minor children, siblings and parents – to make a claim for support against the deceased's estate if the testator failed to make adequate provisions for them and provided other criteria are met.

A further limitation is that a surviving spouse has a right to equalisation of family property on death under the Family Law Act (Ontario), as opposed to taking under the will of the deceased spouse or on an intestacy, provided that the parties' last common habitual residence was in Ontario.

Canadian courts will intervene with a testator's will if there are conditions that are contrary to public policy, which can include conditions relating to:

  • restraint on or interference with marriage;
  • interference with parental duties;
  • discriminatory conditions; or
  • conditions that require or encourage the beneficiary to commit a criminal act.

4.5 What formal requirements must be observed when drafting a will?

The formal requirements of a will vary among the provinces and territories.

In Ontario, the will must be in writing and signed at the end by the testator. There are two ways in which the will can be valid:

  • It is signed by the testator in the presence of two witnesses, and the two witnesses sign their names to the document in the presence of the testator and each other; or
  • It is written wholly in the handwriting of the testator. This is referred to as a 'holographic will'.

If the witness to the will was a beneficiary or a spouse to the beneficiary, the gift to that beneficiary may be invalidated, even though the will is still considered valid.

British Columbia has recently introduced new legislation recognising electronic wills which allow electronic signatures to be used.

4.6 What best practices should be observed when drafting a will to ensure its validity?

In addition to ensuring that the will is validly executed by following the requirements outlined in question 4.5:

  • the will must accurately reflect the testator's intention at the time of signing; and
  • the testator must have testamentary capacity and make the will under his or her own volition without undue influence by a third party.

Proper note taking and documentation are key when these issues arise. In some situations, a capacity assessment may be obtained. It is also important to obtain independent instructions from the testator.

4.7 Can a will be amended after the death of the testator?

A will cannot be amended after the death of the testator.

However, where there is an error in the drafting of the will and the will does not accurately reflect the testator's intentions at the time of signing, rectification by the court may be available. The doctrine of rectification is an equitable remedy that is used only in specific circumstances, including where:

  • there is an accidental slip or omission based on a typographical or clerical error;
  • the testator's instructions were misunderstood; or
  • the testator's instructions have not been carried out.

In Ontario, the terms of a trust may be varied if all beneficiaries of the trust are sui juris and consent to the proposed variation under the rule in Saunders v Vautier. A testamentary trust can also be varied pursuant to provincial legislation. Ontario variation of trusts legislation will permit a court to approve a variation on behalf of any minor, unborn or unascertained beneficiaries, provided that such variation is for their benefit.

4.8 How are wills challenged in your jurisdiction?

Any person with a financial interest in an estate can challenge the validity of a will by initiating court proceedings on the basis of the following:

  • non-compliance with the formality requirements;
  • lack of testamentary capacity of the testator;
  • undue influence;
  • lack of knowledge and approval of the terms of the will; and
  • forgery or fraud.

4.9 What intestacy rules apply in your jurisdiction? Can these rules be challenged?

Property division on an intestacy is set out by provincial and territorial legislation. Generally, the property division will be between the testator's surviving spouse and children or, if no spouse or children, between specified relatives.

Certain provinces, including Ontario, have a preferential share that is to be paid to the legal spouse before the estate is distributed under intestacy laws. In Ontario, the preferential share is currently C$350,000.

Ontario's intestacy laws provide as follows:

  • If the deceased is survived by a legal spouse and no issue, the spouse receives the entire estate.
  • If the deceased is survived by a legal spouse and one child (or the issue of the deceased child):
    • the spouse receives C$350,000; and
    • the spouse receives one-half of the estate and the child (or issue) receives the other one-half.
  • If the deceased is survived by a legal spouse and two or more children (or the issue of a deceased child):
    • the spouse receives C$350,000;
    • the spouse receives one-third of the estate; and
    • the children (or issue) receive two-thirds of the estate.
  • If the deceased is not survived by a spouse but is survived by children (or the issue of a deceased child), the children will share the estate equally.
  • If the deceased is not survived by a spouse or children, the following parties are entitled to the estate in the following order:
    • the deceased's parent or parents;
    • the deceased's siblings (or the issue of a deceased sibling);
    • the deceased's 'next of kin' of equal degree of consanguinity to the estate equally without representation; and
    • the crown.

Although an individual cannot challenge these intestacy rules, the distribution of an estate can be subject to other claims, including under dependant's relief provisions and spousal matrimonial property claims, as discussed in more detail in question 4.4.

5 Trusts

5.1 What laws govern trusts or equivalent instruments in your jurisdiction? Can trusts be governed by the laws of another jurisdiction?

Trusts are governed by the terms of the trust instrument, provincial and territorial trust statutory and common law and the Income Tax Act (Canada).

An inter vivos trust can be governed by the laws of another jurisdiction, depending on the governing law chosen in the trust instrument. A choice of law cannot be made with respect to a testamentary trust, except with regard to construction of its terms.

5.2 How is any conflict of laws resolved?

In the case of an inter vivos trust of immovables, the law of the situs generally governs issues involving essential validity and administration. In the case of an inter vivos trust of movables, the general position is that the essential validity of a trust will be governed by the law chosen by the settlor, and in the absence of a clear intention, the proper law of the trust is the law with which the trust has the closest and most real connection. The domicile of the testator will govern a testamentary trust of movables and the situs of the property will govern a testamentary trust of immovables.

The Hague Convention of the Law Applicable to Trusts and on Their Recognition, adopted in 1984 by the Hague Conference on Private International Law, was ratified by Canada and is in effect in all Canadian common law provinces. Under the convention, the settlor or testator may select the law to govern a trust without the need for a substantial relationship with the chosen jurisdiction.

5.3 What different types of structures are available and what are the advantages and disadvantages of each, from the private client perspective?

An inter vivos trust may be established during a settlor's life or a testamentary trust may be established under a will. A trust can also be created by operation of law.

There are a number of common trust structures available, including:

  • family trusts;
  • estate freeze trusts;
  • spousal trusts;
  • bare trusts; and
  • alter ego or joint partner trusts.

Some of the advantages (as applicable to each trust) include:

  • income-splitting opportunities;
  • maximisation of the lifetime capital gains exemption;
  • creditor protection, including matrimonial protection;
  • wealth preservation;
  • tax deferrals;
  • probate minimisation;
  • privacy; and
  • incapacity planning.

Some of the disadvantages include the costs of set-up and administration and tax compliance.

5.4 Are foreign trusts recognised in your jurisdiction? If so, what process is followed in this regard?

Canadian law recognises trusts created under the laws of another jurisdiction for foreign persons. The Hague Convention on Trust is in effect in all Canadian common law provinces. There is no particular process for recognition.

5.5 How are trusts created and administered in your jurisdiction?

An inter vivos trust is created when property held by a person is transferred to another person to be held for the benefit of themselves or one or more other persons. A testamentary trust is created by will and comes into effect only after death and once funded. An inter vivos trust is completely constituted once the following requirements are met:

  • The settlor has the legal capacity to transfer property to another person to be held in trust or to declare himself or herself to be a trustee of property;
  • The 'three certainties' are satisfied:
    • certainty of intention;
    • certainty of subject matter; and
    • certainty of objects;
  • The trust is validly constituted;
  • The requisite formalities are complied with; and
  • The trust is not illegal or contrary to public policy.

The trust is administered by the trustees, who must act in accordance with the terms of the trust and provincial and territorial statutory law, and the common law in the common law jurisdictions.

5.6 What are the legal duties of trustees in your jurisdiction?

Trustees are fiduciaries. The following are the core duties of trustees, some of which can be modified by the terms of the trust instrument:

  • the duty to comply with the trust terms;
  • the duty of care;
  • the duty not to delegate;
  • the duty of impartiality;
  • the duty of loyalty; and
  • the duty to provide information.

5.7 What tax regime applies to trusts in your jurisdiction? What implications does this have for settlors, trustees and beneficiaries?

The federal tax regime applies to trusts subject to its provisions. Trusts are generally taxed at the top marginal tax rates applicable to individuals. However, graduated rates are available to 'graduated rate estates' for 36 months after the death of the testator, and to certain testamentary trusts with disabled beneficiaries who are eligible for the federal disability tax credit. Income paid or payable to beneficiaries is taxed in the hands of the beneficiaries and not in the trust. The taxation year for trusts (other than graduated rate estates) is the calendar year.

5.8 What reporting requirements apply to trusts in your jurisdiction?

Trustees must file an annual T3 trust income tax and information return within 90 days of the trust year end. Previously, a trust would file a tax return only if it received income or made distributions to the beneficiaries in a year. New trust reporting rules are effective for taxation years ending on or after 31 December 2021 that will require the identity of settlors, trustees and beneficiaries, and those who have control over trustee decisions to pay income or capital, such as a protector, to be reported.

5.9 What best practices should be observed in relation to the creation and administration of trusts?

Trusts should be evidenced in writing, as opposed to being oral, which can be challenging to corroborate. Proper legal and tax advice should be obtained to ensure that the trust is appropriate in each individual circumstance. The settlement funds, such as a coin or a bill, should be fixed to the trust deed to establish the trust and to avoid an accidental wind-up of the trust if all other trust assets are distributed. Proper records should be maintained, and trust account to show all financial transactions and annual tax compliance must be performed.

6 Trends and predictions

6.1 How would you describe the current private client landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

As a result of the COVID-19 pandemic and enormous government deficits, there is great concern that significant increases in the level of taxes, and possibly even new taxes, may be introduced after the next federal general election. It is also stated government policy to address income inequality, which has increased as a result of the pandemic. Speculation as to what form these tax changes may take include the following:

  • changes to the principal residence exemption – the present exemption is unlimited and Canada is one of the few Organisation for Economic Co-operation and Development countries that allows for an unlimited exemption. The exemption could be limited, particularly for high-value homes, where it has been criticised as resulting in increased income inequality;
  • higher corporate and personal income tax rates;
  • an increase in the inclusion rate for capital gains from 50% to a higher percentage;
  • an increase in the goods and services tax and harmonised sales tax rates; and
  • a wealth tax or inheritance or estate tax.

As a result of the pandemic, temporary – and in some jurisdictions permanent – legislation has been introduced to allow for the execution of formal wills and powers of attorney without the physical presence of the testator and witnesses by way of:

  • audio-visual communication;
  • in Quebec and British Columbia, electronic signings; and
  • in British Columbia, electronic wills without a copy printed.

7 Tips and traps

7.1 What are your top tips for effective private client wealth management in your jurisdiction and what potential sticking points would you highlight?

Top tips include the following:

  • Ensure that planning is kept up to date and optimised. In many cases, planning is left for too long without necessary changes being made to reflect changing family and financial circumstances and increased complexity, resulting in a plan not reflecting current wishes and many missed opportunities.
  • Ensure that appropriate trust planning is incorporated to provide for many benefits. There are still many tax and non-tax reasons to include trust planning in an estate plan, and professionals with trust expertise should be consulted to ensure that the estate plan is optimised. As part of will planning, trusts can provide many benefits, including for passing wealth to children, such as:
    • income splitting;
    • capital succession;
    • matrimonial and creditor protection; and
    • probate fee minimisation.
  • During lifetime, with proper advice, a family trust can be used to allow income splitting among lower tax rate family members.
  • For those with significant wealth, an estate freeze should be considered to limit capital gains tax on death, and transfer wealth to the next generation to defer the capital gains tax liability to the next generation.
  • Charitable gift planning for those who are philanthropically minded can provide generous tax benefits – in particular on death, given very flexible tax rules – and can be effectively incorporated into the estate plan.
  • With proper advice, a variety of techniques are available to minimise probate fees and estate administration tax payable on death, which can be significant. The challenge is to ensure that the appropriate strategy is used in each individual circumstance, which involves a careful review of each client's assets and wishes and objectives, and a sound understanding of the legal and tax consequences for any property transfers or changes of ownership or beneficiary.

Traps include the following:

  • Non-residents of Canada should seek professional advice if they own taxable Canadian property, which includes Canadian real estate and private company shares of Canadian corporations, because of the capital gains implications if taxable Canadian property is disposed of, including on death.
  • Clients with assets outside their home jurisdictions should seek professional advice with regard to estate planning for those assets, including relevant tax consequences and structuring of such assets, usually best advised before they acquire the asset. A separate will and financial power of attorney to deal with assets in another jurisdiction may be advisable to ensure that their testamentary intentions are given effect. In some cases, there may be multiple taxation on death, which can be minimised or eliminated with proper planning.
  • Clients who spend periods of time in another jurisdiction should consider a local personal care power of attorney or equivalent in that jurisdiction. Their power of attorney in their home jurisdiction may not be easily recognised, or recognised at all, creating significant problems – in particular in emergency situations.
  • Beneficiary designations should be carefully updated, including on separation and divorce, and are often overlooked, resulting in disputes and even litigation. In addition, the forms used by financial institutions do not allow for more sophisticated beneficiary designations to parallel a client's will plan, and it is important they are aligned and consistent where appropriate – often by using a will as a place to make a declaration or designation to incorporate more complex provisions.
  • In today's digital age, it is increasingly important for clients to maintain an inventory of their assets as part of contingency planning for incapacity and death to assist decision makers, including their attorneys for property and executors, and avoid overlooked assets or delay and expense incurred in reconstructing an inventory in often very challenging circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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