Good day, Canadian medical professionals! It’s George Dube here, and today I’m diving into a topic that’s crucial to understand this year: bare trusts and the new reporting rules. I’ll be highlighting some key points on bare trusts and medical professionals, particularly given that this is the first year for filing bare trusts. The deadline is looming for the trust filing – which will be April 1st this year because the traditional deadline falls on the weekend – and the penalties for failing to file are significant, which I review below. I’ll break down some key points and link to more resources so you can stay informed and avoid any surprises along the way. Whether you prefer reading a blog post, or watching a video, I hope to provide you the information you need to stay onside of Revenue Canada and these new bare trust reporting rules.
Canada Revenue Agency Update, March 28, 2024: In what can only be described as an unbelievable and poorly-timed decision, the CRA walked back the requirement to report on bare trusts for 2023 just days before the filing deadline. For full details, see Bare trusts are exempt from reporting requirements for 2023.
Video Transcript: Bare trusts and medical professionals: Beware new reporting rules
I wanted to provide a quick update and reminder regarding Bare Trusts.
I’m George Dube, saving the world from tax one bow at a time™.
Bare trusts filing deadline and penalties
So quickly, we’re now into March, and as a reminder for people by the end of March, or technically it is, the end of March is on a weekend this year it’ll be on the Monday (April 1st). We need to file a Bare Trust return, which we’ve never had to do before.
And why do we care? Ultimately, if we do not file Revenue Canada has the ability to charge us a 5% value as a penalty, a value on the assets within the Bare Trust.
Bare trusts filing deadline – What happens if you “inadvertently” miss the deadline?
A lot of people I’ve seen and certainly in the media and what have you talking about, well, Revenue Canada has indicated that if we inadvertently miss an asset or a trust filing, they’re not going to hit us with that penalty this year.
I certainly acknowledge what Revenue Canada has said, but your definition of inadvertent, my definition of inadvertent and Revenue Canada’s definition of inadvertent, may be three different definitions.
And if you have a piece of real estate subject to a Bare Trust, perhaps a medical practice, all of a sudden, oh, wait a minute, that starts to add up pretty quickly. And heaven forbid if we have perhaps a joint investment account with the parents or children and that account is over $50,000 at some point during the year, we could be talking substantial and devastating penalties.
So please, please, please ensure that if you do have a bare trust, we get that filed.
Bare trusts: More updates
So a couple of quick update points as we’re working our way through working with our clients in terms of filing the Bare Trust agreements, I, I wanted to bring, again, to people’s attention a couple of points and in terms of background, in terms of what is a Bare Trust and some of the detail.
Please take a look at our prior videos that I’ve done on this topic. You’ll get some more information, but time is running out, so be fast please.
Bare trusts and medical professionals: Check clinic agreements
Now, so really I’m gonna talk about some of the healthcare practitioners who, as we were going through and learning more of the definitions, and I’ll call it legislation Revenue Canada’s put out.
We’re seeing that a variety of healthcare practitioners who operate, for example in clinics have different cost sharing arrangements. You may, depending how it was set up, have a bare trust agreement. You may be sharing costs effectively as a joint venture in a real estate context with other professionals.
You may have a joint bank account, maybe splitting those costs, having the clinic for example, pay for everybody’s expenses and somehow having that cost allocated out. So depending how you’ve set up that structure, please, please, please ensure that if there is a bare trust there, and what we’re seeing is many cases, there are, you filed that trust return.
The Bare Trust return does not create tax. It creates problems if we’ve missed filing and that potential 5% penalty as well.
Bare trusts and medical professionals: Special shares in professional companies
I have noticed in reviewing a lot of our healthcare practices, many people will have when they set up their perhaps professional corporation at the beginning, they may have added adult or minor children to some of the special shares in particular for that company and that professional company, usually with minor children.
Admittedly, it may have been done such that mom or dad hold those shares in trust for that minor child. There is not an ability to say the $50,000 exemption applies in that case. In other words, a $50,000 exemption and not getting into all the details of what it can include, but it’s looking for the value of public company shares. For example, cash. It excludes a private company.
So you may have issued shares for only $10, as an example to a minor child. And we have to file that Bare Trust return if those shares are still held in trust at some point during the year.
So please, please, please, again, let’s see if we can get those filed.
Finding an accountant to file a bare trust: Avalanche of work
There’s been multiple articles I’ve seen in different media sources where people are talking about trying to find an accountant. It’s hard this year. There’s a lot of stress there with the accountants and that’s coming out through some of the articles and I appreciate that there’s not a lot of established accountants that are accepting new clients.
Probably if you are being accepted, you probably have a relationship with the person or you’re very close with other clients that that advisor is working with.
So again, please don’t leave to the last minute. Most advisors are not accepting new clients and it, it’s not that they wouldn’t like to help. It’s that there’s an avalanche of work this year that we’ve never done before with our teams.
We’re trying to go through our normal deadline materials in terms of personal tax returns and teeth slips and partnership returns and normal family trust. But now with the Bare Trust as well, it’s a bit of overload for many of the folks that are trying to help everyone really in terms of requirements and keeping Revenue Canada at bay.
So if you haven’t yet had those discussions with an advisor, again, please, please, please make sure you have a spot that’s available for you or you’ve got alternative arrangements.
Overall, the deadline’s quickly approaching. Please, if you haven’t sent materials into your advisors, please, please, please do it really, really quickly. Flag it for them and let’s hit this deadline with as little damage as possible.
Additional reminders
Thanks everyone. Again, please get your materials in and I should also mention I, I know we’re talking about Bare Trusts, but personal tax returns are right there. We’re starting to see them flow in. Please send those as well, all the materials and T slips, et cetera.
Overall, let’s try and get through this together. I want to help you do wonderful things™.
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Resources
For additional resources related to bare trusts and medical professionals, and others:
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Remember – circumstances are unique! This information is summary in nature. Seek out advice from your tax advisor about your specific situation.
