Break out the champagne! The Finance Minister is (finally) doing something about the unfair taxation that financially penalized business owners who want to transfer their company to family members, an issue on which Raymond Chabot Grant Thornton has made numerous representations since 2010. Starting in 2017, owners of businesses in primary industries and the manufacturing sector will be benefit from tax fairness when transferring their business to a person with whom they have a non-arm’s length relationship.
Given that more than 70% of Quebec’s SMEs are family-run businesses, the firm has insisted that intergenerational business transfers no longer be fiscally penalized, since this has impeded economic growth. The Finance Minister’s decision is a big step toward tax fairness. However, efforts must continue so that this measure is extended to other sectors and the federal government also takes similar action.
Another significant action for succession contained in the March 26 budget is a $2 million investment per year over the next three years to:
- extend the business transfer services provided by Centre de transfert d’entreprises du Québec to all regions; and
- bolster mentoring services in succession by funding the Fondation de l’entrepreneurship’s Réseau M 2.0 project.
We believe it is nonetheless important to support our sellers with just as much attention. This is why we feel there is a need to create a fund to support creators of wealth so they can make use of external professionals in the transfer process and when developing a succession plan. The firm pointed this out to the Finance Minister during the prebudget consultations.
Balanced public finances depend on the totality of business owners who hire, develop, innovate and invest in Quebec. However, this base is being dangerously weakened as Quebec gears up for the biggest change in SME management that it has ever seen.
While the buyers are highly visible and have many tools with which to prepare, the sellers, on the other hand, are less conspicuous. And yet, many studies show that about one-third of business owners will retire in the next five years. Of these, 91% have no formal succession plan.
Why have we fallen so far behind? The answer: business owners have concerns that are making them slow to take action. The situation can be attributed largely to “entrepreneurial mourning”. For entrepreneurs, it is often difficult to step back from the business world. It is not easy to leave the company they founded, built, supported and were fully invested in. They are often very involved in their communities and have concerns about preparing for retirement.
Our leaders want to stay active in their companies, and it is important that they do so in order to ensure the transfer of knowledge, mentoring and a smooth transition. They must also have confidence in the buyers and understand the generational differences that are their strengths. There are obvious human issues that should not be underestimated in the business transfer process. It is no surprise that effective planning takes two to eight years.
Quebec’s Finance Minister will publicly announce the conditions to ensure that the transfer of family business benefit from an exemption in the next year. We hope that the succession plan will be one of the criteria for certifying eligibility.
Raymond Chabot Grant Thornton has helped more than 200 companies develop their succession plan and will continue to be a partner of choice for dynamic companies here in Quebec.