Apr 19, 2021
As you may know, we have supported a request to the CRA to extend the April 30 deadline to June 15. But if the deadline is NOT extended, here are some practical tips to reduce the burden of a COVID tax season.
“There are new changes to the OBCA allowing family members to be non-voting shareholders.”
On December 22, 2005, the Ontario Government quietly released regulations to the Ontario Business Corporations Act (“OBCA”) clarifying which family members can own non-voting shares in professional corporations set up by doctors or dentists. The regulations allow family members to own non-voting shares in one of the following ways:
A “family member,” in relation to a shareholder, is defined as the shareholder’s spouse, child, or parent. “Spouse” is defined as, “in relation to a shareholder, a person to whom the shareholder is married or with whom the shareholder is living in a conjugal relationship outside marriage.”
There are some interesting points to note in the new regulations. It appears that a trust can only be used for minor children, not for a spouse or an adult child. A spouse or an adult child must own their shares in the professional corporation either directly or indirectly. “Indirectly” appears to mean that a holding company can be used.
There is no guidance when a trust has been created for minor children and they become adults. Does this mean that the professional corporation breaches the OBCA because the trust owns shares for an adult child? It would appear that, on the child’s 18th birthday, shares must be distributed by the trust so that the child owns the shares directly. It would also appear that a trust with beneficiaries other than minor children would not qualify, since the trust could be holding shares in a trust for the spouse and adult children, which is not in accordance with the regulations.
The good news is that there is now clear guidance as to who can own non-voting shares and how they can be held. Many medical and dental practitioners should now consider incorporating or, if already incorporated, should consider reorganizing the shareholding of their professional corporation to allow family members to become non-voting shareholders.
The main benefit of having minor children own shares is for the use of the capital gains exemption and capital gains tax planning.
It is best to have a lawyer involved in the incorporation so that there are proper classes of shares.
Overall, the new regulations benefit the medical and dental professions. Other professions hope the regulations will be extended to them.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.
TAX TIP is provided as a free service to clients and friends of Cadesky Tax.
The material provided in Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Cadesky Tax cannot accept any liability for the tax consequences that may result from acting based on the contents hereof.