When it comes to diversified agri-food activities, it is to the entrepreneur’s benefit to undertake an in-depth tax analysis and optimize the business’s structure.
The agri-food sector is distinctive in that agriculture and food processing activities overlap. This makes the industry interesting, but also adds numerous tax considerations.
Tax credits and benefits
The agricultural sector enjoys enviable advantages from a tax point of view. For example, holding eligible farm property and/or corporate shares that qualify as eligible farm property can result in a $1,000,000 capital gains deduction when the business is sold.
In addition, an exclusive and specific provision for this sector is the possibility of transferring the property to family successors with no tax impact. However, compliance with certain conditions is essential in order to avail oneself of these benefits. It is therefore important not to “contaminate” an agricultural activity with non-agricultural operations if the ultimate objective is to take advantage of these tax incentives.
On the other hand, there are also advantages available for manufacturing and processing activities, or M&P as they are often called, such as certain investment tax credits or favourable capital cost allowance rates.
The importance of an appropriate structure
As a general rule, it can be more complicated to benefit from the tax advantages inherent to both activity sectors (agricultural and non-agricultural) if they are grouped under the same entity, hence the importance of discussing with a tax specialist who will be able to help you plan an appropriate and customized structure for your business and projects.
Here are a few key moments in the life of an agri-food entrepreneur where it is essential to consult the right specialists:
Business start-up
Proper guidance and planning will help you determine the most appropriate structure for your business (sole proprietorship, corporation, partnership, trust).
Activity or product diversification
Experts will be able to accompany you in your plans to diversify your activities or products. For example, you own an orchard and want to start producing cider. Does it make sense to combine these two activities into one entity in your situation?
Integrating the various activities
You can choose vertical integration (from cultivating to processing, marketing, distributing and selling your product) or horizontal integration (through the development of services related to your operation, such as organizing weddings and tourism activities at your vineyard).
Growth by acquisition or partnership
Experts can also assist you acquire a competitor, integrate shareholders, develop partnerships, expand or purchase buildings, land or equipment.
Succession planning
Think about succession planning, a possible divorce or estate planning as well.
It is in your best interest to be well supported through the maze of a sometimes complex tax system. Contact our experts to optimize your business’s situation.
Updated on February 16, 2021.
24 Feb 2020 | Written by :
Jacinthe Arès is a tax lawyer at Raymond Chabot Grant Thornton. Contact her today!
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To ensure their sustainability and growth, Quebec SMEs will have to overcome several major challenges in the short- and medium-term, particularly in terms of labour and technological investments.
These are the results revealed by a recent Raymond Chabot Grant Thornton (RCGT) survey of 300 Quebec business leaders. According to the telephone survey conducted by Léger, the main challenges they will have to face in the next three years are recruiting and retaining staff, and technological change and competition.
In the near future, market competitiveness and accelerating information processing are issues for most businesses.
Do you dream of international growth?
If you are thinking about acquiring a business, there are several things to consider.
Stay competitive through the digital transformation of your business.
Rely on talent to ensure the growth and future of your business.
Focussing on growth
Good news: Quebec SMEs were active enough in the past two years to ensure their growth in a context of increasing competitiveness. Accordingly, 62% of them carried out one or more development activities. The most common ones involved diversifying their product and service offering (37%), establishing strategic partnerships with other businesses (31%) and penetrating a new market (27%).
Some 8% of SMEs accelerated their development by carrying out an acquisition, a transaction that involves major challenges. These include integration ability – cited as a main challenge by 26% of acquiring companies – the implementation of a common culture and values (20%) and personnel management (17%).
International expansion was a growth method for 10% of businesses. More than half of them (55%) developed their presence in the United States, 47% in Europe and 15% in China. In most cases, the operation was successful: 79% of leaders stated that it had been profitable, and 21% even consider it very successful.
On the other hand, 10% of businesses that have not yet developed the international market plan on doing so within five years, a proportion that rises to 22% among companies with 100 or more employees.
Innovation
We often hear that innovation is at the heart of competitiveness. In this regard, 65% of companies consider their level of maturity to be fairly or very advanced compared to their competitors. However, 41% claim they don’t have the internal financial resources to develop innovation. In fact, half of the leaders say they are poorly informed about the financial resources available to support their efforts in this regard.
Digital shift
The survey also reveals that just over half of SMEs (57%) have not yet invested in the digital shift, even though it is their third most important issue. The most common investments are in cloud computing (17%), implementing or modifying computer programs (12%), and integrating management software (11%).
Accelerating information processing (for 51% of SMEs), client data security (43%) and the soundness of IT systems (35%) are also major technological issues, according to respondents.
While Quebec is positioning itself as a world leader in artificial intelligence (AI), one out of ten companies has already integrated AI technologies (6%) or plans on doing so in the near future (5%). Interestingly, in the construction sector, the proportion of Quebec companies that have already implemented artificial intelligence projects has risen to 20%, a possible indicator of the industry’s desire to breach its productivity gap.
Labour and organizational culture
Raised by 57% of SMEs, labour force issues are the main challenge for the next three years. To resolve this problem, Quebec companies are focusing entirely on training and skills development (83%).
In fact, more than half of the executives surveyed have created new training tools (61%), increased training expenses (57%) or implemented an employee development program (55%) over the past five years. Just over 40% of companies have also introduced continuing education incentives. These figures rise significantly among companies with 100 or more employees.
Social and environmental responsibility
One of the challenges faced by SMEs is the obvious need to adopt responsible practices. In fact, a high percentage of executives (90%) consider it important to do business with socially responsible suppliers.
Companies are already taking steps to achieve this. In the past five years, more than half of the SMEs surveyed have implemented actions to use less paper (83%) and fewer plastic or Styrofoam cups (71%), or to reduce their ecological footprint (53%). Four in ten companies (42%) introduced an environmental policy.
Furthermore, to contribute to the collective well-being, 46% of executives are involved as volunteers with an organization, and 22% of SMEs have a volunteer program that allows staff to volunteer their time to charitable organizations.
Inspirational successes
Do you recognize yourself in this survey because your company is facing one or more of these major issues? The success of outstanding leaders will inspire you to take on these challenges with flying colours.
To discover best practices in innovation, international expansion, corporate transactions and leadership, we invite you to read about the success stories of the Person of the Year Award finalists.
Study methodology: Telephone survey of 300 leading Quebec businesses with 10 to 499 employees, February 2019.