Updated Checked by the Tax-Services.ca editorial team How we check
Testamentary trusts start because someone died, usually through a will, and they only get cheap tax rates in two cases. The CRA lets an estate use graduated rates for up to 36 months after the death (a graduated rate estate), and a qualified disability trust keeps them too. Every other one pays the flat top rate on its income.
What makes a trust testamentary?
The CRA describes it as a trust or estate created on and because of a person’s death. That covers a trust set up by the terms of a will and one created by a court order. Another kind, set up while you’re alive, is a different animal with its own rules.
So a will that says “my house goes into a trust for my daughter until she’s 25” creates one. The estate itself, while the executor is still winding things up, counts too. That’s the detail that catches people out.
The estate and the later trust can be taxed differently.
Which testamentary trusts still get graduated rates?
Before 2016, every testamentary trust could use the ordinary graduated rates, a bit like a second taxpayer. That ended. The CRA’s own budget notes say the flat top rate applies from the 2016 tax year to trusts created by will and certain estates, with two exceptions.
| Type | Rates on its income | Time limit |
|---|---|---|
| Graduated rate estate | Graduated | Up to 36 months after death |
| Qualified disability trust | Graduated | No fixed limit on this page |
| Other testamentary trust | Top rate, flat | Every year |
To be a graduated rate estate, the estate has to say so on its T3 return, give the deceased person’s social insurance number, and be the only estate making that choice. Miss one of those and you lose the status. After 36 months it ends no matter what.
A qualified disability trust needs a beneficiary who is approved for the disability tax credit. We didn’t confirm the full list of conditions, so read them on the CRA trust pages before you count on it.
What does the flat top rate cost in real dollars?
Take $40,000 of income sitting inside a trust. Under the 2026 federal brackets, the first $58,523 of income is taxed at 14%, so $40,000 comes to $5,600 before any credits. At the top federal rate of 33%, the same $40,000 is $13,200. That’s $7,600 more, and it’s federal tax only, since Ontario or another province adds its own on top.
Credits muddy the picture, and we couldn’t confirm which personal credits a trust can claim. So treat those figures as the rate gap, not a bill. If you want to see what graduated rates look like for a person, the income tax calculator shows a full breakdown (an individual’s result, not a trust’s), and the marginal tax rate calculator shows what the next dollar costs.
When do you file the T3 and pay?
The T3 return is due 90 days after the trust’s tax year end, and so is any balance owing. A trust that isn’t a graduated rate estate uses December 31 as its year end. That puts its return at the end of March, give or take a weekend. A graduated rate estate can pick a different year end, which is useful for timing.
The CRA suggests getting a clearance certificate before you hand out the property. It’s a real safeguard for an executor, because unpaid tax can land on the person who distributed the assets. We haven’t confirmed the rules on personal liability here, so ask the CRA how a certificate applies to your estate.
Mistakes that cost an estate money
The big one is leaving the estate open too long without a plan. The graduated rates stop at 36 months, and a slow sale of a house can push you past it.
Another is forgetting that capital gains on assets in the estate are taxed too. The capital gains tax calculator uses a 50% inclusion rate for 2026, which is our working figure, since we couldn’t find the 2026 rate on a CRA page. A proposed rise to two thirds was cancelled in the federal announcement of 21 March 2025.
And don’t mix up probate costs with income tax. Ontario charges an estate administration tax on the value of the estate, and the estate administration tax calculator works out that one. It has nothing to do with the trust’s rates.
Setting up a trust in a will takes a lawyer who does estates. Ask them if you need one at all, because for a small estate a plain gift is often simpler and costs less to run every year.
Where the numbers come from
Trust definitions, the 36-month rule and the 90-day T3 deadline come from CRA pages on trust types and T3 filing. The 2016 rate change comes from the federal budget notes on the CRA site, and the federal brackets come from the 2026 data we checked on 29 September 2026. This website has no connection with the CRA or any other government body.
Frequently asked questions
Do testamentary trusts get graduated tax rates?
Only if it is a graduated rate estate (up to 36 months after death) or a qualified disability trust. Other testamentary trusts pay the top rate.
How long can an estate be a graduated rate estate?
For up to 36 months after the person's death. The status ends then, even if the estate is still open.
When is the T3 return due?
90 days after the trust's tax year end, and any balance owing is due on the same day.
What year end do testamentary trusts use?
December 31, unless it is a graduated rate estate, which can choose another year end.
Is a trust in a will the same as the estate?
No. The estate is created by the death, and a trust in the will starts later. Both count as testamentary trusts, but they can be taxed differently.
All family and benefits calculators
- How Canadian income tax works: brackets and credits
How federal and provincial Canadian income tax stack up, what marginal and average rates mean, and how credits and deductions change your bill
Information only. This page is general information, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns or offer tax services, and we have no connection with the CRA, Revenu Québec, any government or any company named on this page. Check the figures that matter with an official source or a qualified professional.