# What Is a Family Trust Used For in Canada?

> Federally, a family trust is a legal arrangement that holds property, such as investments or real estate, for the benefit of related family members. Common uses include income splitting (though the CRA's tax-on-split-income, or TOSI, rules can tax distributions at the top rate) and holding property to meet tax exemption tests. In Ontario and Alberta, each province's Trustee Act governs how the trust's property and trustees are administered.

Published 2026-08-06 · Last reviewed 2026-07-31 · [Canonical page](https://canadalegalcenter.ca/articles/what-is-a-family-trust-used-for-in-canada/)

Legal information, not legal advice.

## What a family trust holds and who it's for

A family trust is a legal arrangement that holds property, such as investments, a business interest, or real estate, for the benefit of specified family members, called beneficiaries. Two uses of this structure are documented in federal tax guidance: splitting income among relatives and holding property to meet the conditions of certain tax exemptions. Both are shaped heavily by federal tax rules, while the day-to-day administration of the trust itself (who acts as trustee, and what happens if a trustee needs to be replaced) falls under provincial law in Ontario and Alberta.

## Income splitting, and the TOSI trap

One of the most commonly cited uses of a family trust is income splitting: distributing income earned by the trust's property (dividends, for example) to family members who may be taxed at a lower personal rate than the person who originally earned or contributed the income.

This use comes with a significant federal limitation. The Canada Revenue Agency's tax-on-split-income (TOSI) rules can apply to "split income" received by a related individual from a trust, taxing that amount at the top marginal tax rate rather than the recipient's own rate, unless a specific exclusion applies. The CRA's guidance gives an example where an amount received by an adult child from a family trust is treated as split income and taxed at the top rate. This means income splitting through a family trust does not automatically produce a lower overall tax bill; whether it does depends on whether a TOSI exclusion applies to the particular beneficiary and situation.

## Holding property for family members

A second documented use is holding property, including real estate, for the benefit of family members rather than in an individual's own name. This use shows up directly in federal tax administration: under the Underused Housing Tax rules, the CRA recognizes a family trust as a "specified Canadian trust" for a given year where all of the trust's beneficiaries are "excluded owners," which can determine whether an exemption from that tax applies. This illustrates how the trust structure, property held for named beneficiaries rather than by an individual owner, is built into how at least one federal tax rule is applied.

## How Ontario and Alberta law fits in

Federal tax law shapes why families use a trust and what tax consequences follow, but the trust itself, once created, is administered under the trustee legislation of the province where it is set up.

<div class="table-scroll">

| | Ontario | Alberta |
|---|---|---|
| Governing statute | Trustee Act, RSO 1990, c T.23 | Trustee Act, RSA 2000, c T-8 |
| What it covers (as relevant here) | Rules for property conveyed in trust, with specific exceptions, for example land conveyed by mortgage, or shares/stock/annuities transferable only through a company's own books, are not covered by section 3 | Court authority: the Court of King's Bench may appoint a new trustee where doing so is expedient but difficult or impractical without the court's help (s 16(1)) |

</div>

Neither Act defines "family trust" as a distinct category; both apply the same trustee framework to any express trust holding property in that province, whether it happens to be structured as a family trust or another type. In practice, this means the mechanics of getting the trust's ownership or trustees right, and what happens if a trustee needs to be replaced, are governed by provincial law even though the tax planning reasons for creating the trust are federal.

## Why the distinction matters

Because the tax treatment of a family trust (income splitting outcomes, exemption eligibility) is set federally and applies the same way whether the trust is created in Ontario, Alberta, or elsewhere, the provincial Trustee Acts do not change what a family trust is used for. They govern a separate layer: how the trust's property is legally conveyed and how its trustees are appointed or replaced within that province. A reader weighing whether a family trust suits their situation is really weighing two different questions: the federal tax consequences of the intended use (income splitting, property holding), and the provincial administrative rules that will apply once the trust exists.

## Frequently asked questions

**Can a family trust be used to split income with family members?**

Federally, yes, this is a common use. But the CRA's tax-on-split-income (TOSI) rules can tax amounts received by an adult relative at the top marginal rate unless a specific exclusion applies, so the tax benefit is not automatic.

**Can a family trust hold real estate?**

Federally, yes. The CRA treats a family trust holding property as a 'specified Canadian trust' for purposes of the Underused Housing Tax when all beneficiaries are excluded owners, which shows real estate held this way is a recognized use of the structure.

**Who oversees a family trust's property in Ontario or Alberta?**

In Ontario, the Trustee Act (RSO 1990, c T.23) sets rules for property conveyed in trust. In Alberta, the Trustee Act (RSA 2000, c T-8) allows the Court of King's Bench to appoint a new trustee when needed. Both apply to any trust holding property in that province, including a family trust.


## Sources

1. [Guidance on the application of the split income rules for adults - Canada.ca](https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/income-sprinkling/guidance-split-income-rules-adults.html), CRA, Guidance on the Application of the Split Income Rules for Adults (Canada.ca) (retrieved 2026-07-17)
2. [Exemptions for Specified Canadian Partnerships, Trusts and Corporations - Canada.ca](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/uhtn4/exemptions-specified-canadian-partnerships-trusts-corporations.html), CRA, UHTN4 Exemptions for Specified Canadian Partnerships, Trusts and Corporations (Canada.ca) (retrieved 2026-07-17)
3. [Trustee Act, RSO 1990, c T.23](https://www.canlii.org/en/on/laws/stat/rso-1990-c-t23/latest/rso-1990-c-t23.html), Trustee Act, RSO 1990, c T.23, s 3(3)
4. [Trustee Act, RSA 2000, c T-8](https://www.canlii.org/en/ab/laws/stat/rsa-2000-c-t-8/latest/rsa-2000-c-t-8.html), Trustee Act, RSA 2000, c T-8, s 16(1)