Quebec’s economy is faring better and the Quebec government has decided to open the floodgates.
In his fifth budget, the Quebec Finance Minister is focussing on investments in a wide range of economic sectors. However, the current scenario places Quebec in a deficit position for the next two years.
Quebec’s 2018-2019 Economic Plan is casting a wide net, encompassing health, education, public transit, road infrastructures and families. Businesses will also reap benefits. Could the election year have influenced the many investment choices?
Support was expected for SMEs and the budget did not disappoint. Tax relief measures totalling $2.2B will be introduced by 2022-2023 to boost their competitiveness.
Lower payroll taxes
Corporate contribution rates to the Health Services Fund will be reduced, providing SME with $1.2B in savings.
Income tax reduction
An additional positive measure is the gradual decrease of the income tax rate for SMEs in the services and construction industries to 4% by 20222023, with the objective of having these SME eventually benefit from the same rates as SMEs in the primary and manufacturing term. This measure results in a $1B tax reduction.
Additional innovation support
The budget includes support for businesses to foster innovation and help them carve a place for themselves on the international market.
Support of $60M by 2019-2020 has been announced to promote the development of supply chains optimized by artificial intelligence. Additionally, relief totalling $241M has been provided to accelerate business investment in the next five years. These enhancements are the result of increasing the additional capital cost allowance from 35% to 60% and extending it to March 31, 2020 to support the acquisition of cutting-edge technologies. This measure would benefit more than 30,000 businesses investing to improve their productivity.
National labour strategy
Over the next five years, more than $800M will be invested to better support the labour market. Among others, the budget introduces a new tax credit for SMEs if they set aside time for their employees to develop their professional skills. In the coming weeks, the government will be tabling its 20182023 National Workforce Strategy. This national strategy will set aside significant resources to better integrate immigrants in the job market.
Regional economic development
The numerous measures announced include new funds totalling $724M by 2022-2023 for initiatives to be determined that would support economic development in the regions, be it for the forestry sector, mining development, pursuing the maritime strategy or the Plan Nord.
Voluntary disclosure program
The government is announcing a consultation to review the voluntary disclosure program with the potential objective of tightening it up like the federal government did.
For more information on the tax measures announced in the 2018-2019 budget, download the document below.
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What is the Tax Cuts and Jobs Act?
It’s the most important tax reform since 1986 and was voted on by the U.S. House of Representatives and Senate in December 2017.
Do you do business in the United States? Are you wondering how this new reform will impact you?
Listen to our free webinar. Topics discussed include:
- Changes to U.S. tax rates and the tax system;
- Changes to interest deductibility, amortization and using operating losses;
- New restrictions on using hybrid instruments and entities;
- New rules for foreign corporations controlled by a U.S. corporation or citizen.
This information session is courtesy of Raymond Chabot Grant Thornton and is given in French.
You can download the presentation below.
Watch online here (in French)
Password: rcgt2603
26 Mar 2018 | Written by :
Mr. Turcotte is a partner at RCGT. He is your expert in taxation for the Montréal office. Contact...
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Complementary summaries of the Canadian provincial budgets are posted online, or will be in the coming weeks, thanks to an initiative in association with Grant Thornton Canada.
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Saskatchewan
Available soon.
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Prince Edward Island
Available soon.
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There are numerous challenges in a business succession initiative, with financing being a key issue, as it can mean the difference between a successful transaction or a failure. It can also have a major impact on the business’s medium-term sustainability.
There are several points for the transferor to consider:
- Will the asking price ensure the business’s long-term longevity?
- Will the transferor receive sufficient funds for retirement?
- Is the transferee’s cash outlay sufficient?
- Will the transferor have to invest in the financing structure to ensure the transaction’s success?
Balance of sale price
Generally, the transferee’s outlay represents a small portion of the succession plan financing structure (less than 20%) and usually serves to maintain a balanced financial structure. When the overall transaction value is low, this may be sufficient. However, if the value is in the hundreds of thousands, such a low percentage could prove to be a significant obstacle.
The balance of sale price, i.e. the transferor’s financing, then becomes the best solution to complete the financing structure. Often misunderstood, the balance of sale provides flexibility in the financing structure and a means for the transferor to recover the full value of the business during the first years following the transfer.
The transferees’ results must be as good as those of their predecessors, given the high debt level. Flexibility is an undeniable asset in ensuring a successful business transfer. Sound strategic planning that provides for some growth will make it easier to bear the financing burden.
The right choice
In a succession situation, the transferee’s management skills are a major consideration when obtaining financing. For this reason, a gradual transfer is the preferred option. It allows the transferees to gradually gain management experience and confidence and reassures the lenders about the business’s operations and management. Lastly, it provides the transferees with a gradual participation in the business’s future returns and maintains the transferor’s capital during the transition.
Feasibility of the succession plan
Generally, it can take from four to ten years for transferors to recover the full value of their business, depending on:
- The industry;
- The value of available security;
- The business’s historical and future cash flows;
- The transferee’s financial capacity;
- The transferee’s competencies and the soundness of their succession plan.
A business transfer diagnostic can be a useful tool to shed light on these factors and confirm the succession plan’s feasibility for both parties.
There is a wide range of possible financing scenarios, which is why it’s crucial to talk with the parties to determine their expectations and propose the best financing structure in accordance with their needs.
22 Mar 2018 | Written by :
Éric Dufour is a vice-president at Raymond Chabot Grant Thornton. He is your expert in management...
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