The short answer
For most Ontario physicians and dentists, an ordinary family trust cannot own shares of their professional corporation, and since 2018 the tax on split income has removed most of the income-splitting benefit. Trusts still matter in wills, for existing family trusts facing the 21-year rule, and for companies other than professional corporations, such as one owning a clinic building.
GuideFamily trusts are often presented to business owners as the foundation of their tax and estate plan. Most of that material is written for business owners in general, and much of it does not survive contact with an Ontario medicine or dentistry professional corporation. Two facts change the picture: corporate law keeps an ordinary family trust off your corporation's share register, and the tax on split income, extended to adults in 2018, removes most of the income-splitting benefit that remains.
Trusts still matter to incorporated professionals, just in different places than general business-owner material suggests: in wills, in family trusts set up years ago that now face the 21-year rule, in companies that are not professional corporations, and in how an estate is taxed. This guide explains what a trust is, how it is taxed, and where it can genuinely help. It is orientation, not advice to set one up: a lawyer drafts a trust and an accountant prepares its returns.
Which parts apply to you depends on what you own and what already exists.
| Your situation | Where a trust fits |
|---|---|
| Shares of your medicine or dentistry professional corporation | An ordinary family trust cannot own them, and income to family members is mostly taxed at the top rate anyway |
| An existing family trust holding shares of another company, real estate or investments | It generally files every year and faces the 21-year rule. This is where most planning attention belongs |
| A company that is not a professional corporation, such as one that owns your clinic's building | A trust can own its shares, but the tax on split income can still tax family income from it at the top rate |
| Your will | Testamentary trusts can still help with control and with beneficiaries who have disabilities, but the 2016 tax changes may have undone what an older will was designed to do |
A trust is a relationship, not a product you buy. It exists when trustees hold property for beneficiaries under terms that bind them. It is not a legal person like a corporation, although it files its own tax return. Three parties are involved:
A valid trust needs three certainties: a clear intention to create a trust, clearly identified property, and clearly identifiable beneficiaries. For tax purposes, a trust is either testamentary, arising on death, usually under a will, or inter vivos, created during the settlor's lifetime. Family trusts set up by business owners are inter vivos trusts. A bare trust, where someone holds legal title only as an agent for the real owner, is generally ignored for income tax purposes, although it may still have to file a return, as explained below.
This section applies to every physician and dentist who practises through a professional corporation. The answer is generally no, and it shapes everything else. Ontario Regulation 665/05 sets out who may own shares of a medicine or dentistry professional corporation:
An ordinary discretionary family trust fails that test. Its beneficiaries usually include a spouse, adult children or future grandchildren, and sometimes a company, while the regulation allows a trust to hold shares only for minor children, with individuals as trustees and non-voting shares only. A holding company cannot own shares either: both colleges say so expressly.
The narrow exception, individual trustees holding non-voting shares for your minor children, does little for income: dividends to minors are taxed at the top rate under the tax on split income rules. The regulation also does not say what happens when a child beneficiary turns 18, which is a question to put to your lawyer well before that birthday.
This also rules out the classic estate freeze in favour of a discretionary family trust for the professional corporation itself. A freeze in favour of a trust can still work for a company that is not a professional corporation, which is where most of the trust planning below applies.
This applies to any trust you have or might create, including one in your will; an estate that qualifies as a graduated rate estate and trusts for beneficiaries with disabilities have some different rules, covered under wills below. A trust is a separate taxpayer. It uses a calendar year, and its T3 return is due 90 days after the year ends, which is March 31 in most years. Ordinary income the trust keeps, such as interest, is taxed at the top federal rate plus Ontario's top rate, 53.53 percent in 2026, and dividends and capital gains it keeps are taxed at the top rates for those types of income. Income the trust pays, or makes payable, to a beneficiary in the year is generally deductible to the trust and taxed to the beneficiary instead.
With the right designations, much of that income keeps its tax character on the way through: dividends keep the dividend tax credit and capital gains keep capital gains treatment in the beneficiary's hands, while income such as interest is taxed as ordinary income. This is often called the conduit principle, and it is why a trust can pass on dividend tax credits, capital gains treatment and, in the right structure, access to each beneficiary's lifetime capital gains exemption. Losses do not flow out: a loss realized by a trust stays in the trust.
A simple example shows the effect. A trust earns $20,000 of interest in 2026:
| Where the $20,000 is taxed | Additional tax on the $20,000, 2026 Ontario rates |
|---|---|
| Kept in the trust | $10,706 |
| Allocated to an adult beneficiary with no other income | about $851 |
| Allocated to an adult beneficiary with $50,000 of other income | about $5,216 |
| Allocated to an adult beneficiary with $100,000 of other income | about $7,082 |
Each figure is the additional tax caused by the $20,000. The beneficiary figures use 2026 federal and Ontario brackets less the basic personal amounts, plus the Ontario Health Premium, and leave out other credits and reductions. The main one left out is Ontario's low-income tax reduction: including it brings the $851 down to about $605 for a qualifying single adult with no dependants. It does not change the other two beneficiary figures.
That gap is what family trusts were built to use, and it is also what the attribution rules and the tax on split income were built to close. If the trust's property came from a parent or spouse, the income can be taxed back to that person: for example, income on property contributed for a spouse or a minor child, or on property the contributor can take back or direct. And where the income comes from a family business, the tax on split income can tax it at the top rate in the beneficiary's hands anyway.
Trusts also carry compliance costs. Unless an exemption applies, a family trust must now file a T3 return every year, even with no income or tax owing, and report everyone involved, including settlors, trustees and beneficiaries, on Schedule 15. The exemptions cover trusts that have existed for less than three months, trusts holding $50,000 or less of assets throughout the year, and small family trusts with individual trustees and qualifying beneficiaries related to each trustee where, throughout the year, the trust's assets are worth no more than $250,000 and consist only of permitted assets, such as cash, GICs and publicly traded investments. Private company shares are not among them. An exemption removes only the annual requirement: an exempt trust still has to file a T3 return in a year it has tax payable, disposes of capital property or makes distributions above set thresholds, among other triggers, although it does not include Schedule 15. Depending on the facts, filing late can bring a penalty based on any unpaid tax or a penalty of $25 a day, from $100 up to $2,500. For a trust that is not exempt, knowingly or through gross negligence failing to file or report can cost the greater of $2,500 and 5 percent of the highest value of the trust's property in the year.
Bare trusts were exempt from filing for 2024 and 2025, but new rules bring certain bare trusts back into filing for years ending on or after December 31, 2026, with the first returns due by March 31, 2027. If anyone holds property in name only for you, or you for someone else, ask your accountant whether that arrangement now has to file. Most trusts are also subject to the alternative minimum tax without the basic exemption individuals receive; a qualified disability trust gets that exemption, and the estate itself, while it qualifies as a graduated rate estate, is exempt from the tax.
This applies to any family member who receives income from your practice or another family business, directly or through a trust. The tax on split income, known as TOSI, has applied to minors since 2000 and was extended to adult family members in 2018. Before that extension, a family trust owning shares of a business could pay dividends to a spouse and adult children at their lower tax rates. Now, dividends and trust allocations from a related business are taxed at the top rate in a family member's hands unless an exception applies, and amounts that flow through a trust are caught the same way.
For incorporated professionals, the exceptions are narrow:
The honest summary: for income splitting, a family trust usually does little for a physician or dentist today. That is not the same as a trust doing nothing.
This applies mainly if you own, or plan to own, a company that is not a professional corporation, or if you already have a family trust.
Against that sit real costs: set-up and annual professional fees, top-rate tax on retained income, a fixed December 31 year-end, losses that cannot be passed out, the attribution rules, annual filing and trustee duties, and the 21-year rule. For a physician or dentist with no non-clinical assets and no succession need, a trust may cost more than it delivers.
This applies if you already have a family trust, or are a beneficiary of one. A typical family trust is deemed to sell its capital property at fair market value, and buy it back, on its 21st anniversary and every 21 years after that, so accrued gains are taxed without any sale or cash. A family trust created in 2006 reaches that date in 2027. Some trusts run on a different clock: a qualifying spousal or common-law partner trust, alter ego trust or joint partner trust generally has its first deemed sale on the death of the spouse or settlor (for a joint partner trust, the later death), and the 21-year cycle runs from that date.
The usual response is to distribute property to Canadian-resident beneficiaries before the date, which the Act allows at cost, moving the deferred gain into their hands. That has conditions and trade-offs: the trust deed must permit it, the trustees give up control of what is distributed, it is not available for non-resident beneficiaries, and it can be blocked entirely if the trust was ever caught by the reversionary trust rules. Moving property to a new trust on a tax-deferred basis does not restart the clock, and a measure announced in the November 2025 federal budget, still before Parliament at this review, would extend that to indirect transfers. Sometimes the trustees choose to pay the tax and keep the trust, for example where the accrued gain is small or the beneficiaries are not ready to own the property.
If you have an existing family trust, the first question is when it turns 21, and the second is whether anyone has a plan for that date.
Everyone has an estate, so this part applies to every physician and dentist.
A will can leave assets outright or create a testamentary trust that holds them for beneficiaries under terms you set. Before 2016, each testamentary trust was taxed at graduated rates, and wills often created several to split income. Since 2016, testamentary trusts pay the top rate on income they keep and use a calendar year-end. Two kinds of trust keep graduated rates:
A will written before 2016 with several testamentary trusts may no longer do what it was designed to do. The trusts can still be worth keeping for control, for protecting a beneficiary's inheritance, or for timing distributions to young adults, but the tax reason may be gone while the annual filing costs remain.
At death, you are generally treated as selling your capital property, including your professional corporation shares, at fair market value, unless it passes to a spouse or a trust for a spouse. Ontario also charges estate administration tax of 1.5 percent on the value of an estate above $50,000. Assets that pass outside the estate, such as property already held in an inter vivos trust or life insurance paid to a named beneficiary, are not part of that value, and Ontario lawyers often use a second will for assets that do not need probate, such as private company shares, which can keep them out of the calculation.
This applies if your estate will face a large tax bill without the cash to pay it. At death, the deemed sale of your shares and other assets can create a large tax bill on your final return, and life insurance is one way to fund it without selling assets in a hurry. Insurance is not a plan for a trust's 21-year date: a death benefit is paid only when the insured person dies, and that person may well be alive when an existing trust reaches its anniversary, so that tax needs its own liquidity plan, such as setting aside cash in the trust, or distributing property before the date where that suits the family. When a private corporation receives the death benefit as beneficiary, the proceeds less the policy's adjusted cost basis are generally added to its capital dividend account and can be paid out tax-free with a capital dividend election, as the corporate-owned life insurance guide explains; the estate bond shows one way that is structured. A trust can also own a policy, and a beneficiary designation can sometimes do what a separate trust would, for example by appointing a trustee to receive proceeds for a minor child, which your lawyer should align with your will. Disclosure: I am a licensed insurance and investment advisor and life insurance is among the products I place, so have your lawyer and accountant review any structure, including one I suggest.
A lawyer drafts a trust, its trustees administer it, and an accountant prepares its returns. I do not set up trusts or wills, and nothing in this guide replaces that work. Where I fit is around it: whether the plan leaves a liquidity gap at death or at a trust's 21-year date, how insurance and investments are owned, and making sure the right questions reach your lawyer and accountant.
Questions worth taking to your lawyer and accountant:
For how the professional corporation itself works, see the professional corporation decision; for paying yourself and your family, the salary vs dividends guide; and for investing what the corporation keeps, the corporate investing guide. How estate planning fits into a broader plan is covered on the pages for physicians and dentists.
Generally no. Ontario's regulation lets only members of your college own voting shares. Non-voting shares can be owned only by a member, your spouse, child or parent, or individuals holding them as trustees for your minor children. An ordinary discretionary family trust, with a spouse, adult children or a company among its beneficiaries, does not fit.
Rarely through income splitting. Since 2018, dividends and trust allocations to family members from a related business are usually taxed at the top rate under the tax on split income rules, and the excluded shares exception is never available for professional corporation shares. Trusts can still help with estate planning, control and non-clinical assets.
It files its own T3 return for a calendar year. Ordinary income it keeps, such as interest, is taxed at the top combined rate, 53.53 percent in Ontario for 2026, and dividends and capital gains it keeps at the top rates for those types of income. Income it pays or makes payable to a beneficiary is generally deductible to the trust and taxed to the beneficiary instead.
A typical family trust is deemed to sell its capital property at fair market value on its 21st anniversary and every 21 years after, so accrued gains are taxed without any sale or cash. Qualifying spousal, alter ego and joint partner trusts instead have their first deemed sale on a death. The usual response, distributing property to Canadian-resident beneficiaries at cost before the date, has conditions and gives up control, so planning should start years ahead.
Sometimes, for reasons other than tax. Since 2016, testamentary trusts pay the top rate on income they keep. The exceptions are an estate that qualifies and designates itself as a graduated rate estate, for up to 36 months after death, and qualified disability trusts for beneficiaries who qualify for the disability tax credit. A trust in a will can still control when young or vulnerable beneficiaries receive money. Review any will written before 2016 with your lawyer.
