Hélène Robitaille
Senior Manager | CPA, LL.M. Fisc. | Tax

Under Quebec tax rules, only one tax credit may be claimed for an activity.

Taxpayers must therefore make informed decisions to optimize their credit entitlement. In the following paragraphs we discuss integrating the research and development tax credit for salaries and wages (tax credit for salaries) and the tax credit for the development of e-business (CDAE). We have also included a few scenarios that could guide readers in their possible choices.

The choice is impacted by several factors: the employee’s salary, the use of the employee’s time, the corporation’s tax status, whether or not the investment tax credit (ITC) is refunded, etc. An additional consideration is that, unlike the tax credit for salaries, the CDAE is not considered government assistance that reduces expenses qualifying for the SR&ED tax credit for federal purposes. Additionally, Investissement Québec charges annual fees for processing the CDAE file.

CDAE overview

To qualify for the CDAE, a corporation must satisfy criteria relating to its income, activities and employees (have at least six eligible employees). The CDAE provides for assistance of 30% of qualifying salaries, up to $25,000 (amount reached when the qualifying salary is $83,333), and 24% is refundable. An eligible employee must spend at least 75% of his/her time carrying out qualifying activities.

Tax credit for salaries overview

The tax credit for salaries depends on the corporation’s shareholders and assets.* To simplify the explanation, let’s look at two scenarios: a Canadian controlled corporation with assets of less than $50M and a corporation with assets over $75M.** The first corporation benefits from a tax credit of 30% while the second one has a 14% tax credit.

For comparison purposes, we assume that the employee’s salary fully qualifies for the tax credit for salaries and the CDAE. Also, in looking at the scenarios, we will not be taking into consideration the impact of the limit of expenses in Quebec.

Most advantageous choice

It is in the first corporation’s interest to claim the CDAE for an employee with a salary under $128,205 in order to maximize total credits and under $105,564 to maximize refundable tax credits.

The second corporation should claim the CDAE for an employee with a salary under $210,084 to maximize total credits and under $168,067 to maximize refundable tax credits. In light of the high amounts in question, these corporations will almost always claim the CDAE.

Undesirable effect in some cases

Under Quebec legislation, when an activity qualifies for more than one credit, the employee’s time relating to the activities must be attributed to one or the other of the credits. In the first corporation’s case, it may be beneficial to combine the two credits, as shown below:

Employee’s salary is $130,000 with 75% being eligible for the tax credit for salaries and 100% being eligible for the CDAE.

If the corporation were to claim only the tax credit for salaries, its credit would be $29,250, whereas if it were to claim the CDAE, it would receive $25,000. If it combines the credits, it could claim $35,500 (increase of $6,250, compared with only claiming the tax credit for salaries).

In the second corporation’s case, combining the credits would have an undesirable effect. By opting for the tax credit for salaries, it would claim $13,650 and under the CDAE, it could claim $25,000. However, by combining the credits, it cannot increase the $25,000 CDAE credit amount. This is because only activities can be used to combine the credits, not expenses. There is a portion of expenses for which it cannot claim a credit because of the CDAE qualifying salary ceiling.

As you can see from these examples, each situation is different, with its own variables. There is however, one constant you can count on, Raymond Chabot Grant Thornton’s tax specialists are there to assist you.

* To be entitled to some or all the increased credit, the corporation must be Canadian controlled and the consolidated world assets of the associated group must be under $75M.

** The rate to calculate the tax credit for salaries decreases on a straight-line basis from 30% when assets are $50M to 14% when assets are $75M.

19 Jan 2017  |  Written by :

Ms. Robitaille is a senior manager at RCGT. She is your expert in taxation for the Montreal office....

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Ferme Taillon is a diversified farm operation with organic grain, dairy, poultry and other productions.

One employee, Olivier Milot, has always stood out, to the point where, for several years now, he has been able to manage all of the farm’s activities when the owners, brothers Christian and Daniel Taillon, are away.

A trusted employee, Olivier Milot gained his experience over the years since joining the operation when he was 14. The owners noticed his drive, good work and interest in the farm’s activities and now he is being presented as the operation’s successor.

“I’ve always been in favour of farm successors who don’t have a farm,” explains Christian Taillon. “Our children, Daniel’s and mine, have not shown an interest in taking over the farm. They have found their own passion in life and we are pleased for them. However, we did want the farm to continue, and Olivier was a good candidate as successor.”

Once discussions were initiated and Olivier’s interest confirmed, it didn’t take the Taillon brothers long to involve him in all aspects of the farm’s activities, from production to finance, as well as expansion and acquisition projects. The succession plan was formalized in record time.

“We had made our decision, and we wanted to finish it all in eight months,” says Christian. “Everybody told us it was impossible, this is something that usually take one to two years.”

They met the transfer process challenge thanks to the support of a multidisciplinary team.

“There were 12 of us around the table,” he remembers. “Experts from Groupe multiconseil agricole Saguenay–Lac-Saint-Jean, the UPA, Desjardins, Raymond Chabot Grant Thornton, as well as our insurer and our notary, were all involved. We planned our meetings ahead of time and everyone had assigned tasks to complete in between.”

The stakeholders’ goodwill and the business’s sound financial situation obviously contributed to the process’s success and the agreement reached. The Taillon brothers plan to stay involved in the farm for many more years and the transfer will take place gradually.

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Have you properly prepared your succession plan? Did you cover all the bases? Passing the torch to the person who will take over your business is no easy feat.

This transferor’s testimonial reminds us of the importance of having a well-planned succession plan and making sure all the bases are covered.

Sound management, communication and openness to the needs and objectives of all those involved are factors to be taken into consideration when carrying out a business transfer and, for parties concerned, ensuring that the business goes on.

Expect the transfer to take several years

Régis Simard founded Les Forestiers F.A.J. inc. in 1995. His wife, Johanne, is also involved in the company, as secretary-accountant. For several years, they had been thinking of selling the company.

“I didn’t want just anybody to take over the business,” explains Régis. “Keeping it going is important. I’d been talking about this to Jean-Louis for about four or five years. He’s been a key employee for 18 years and is married to my niece.”

An automobile accident at the age of 57 led Régis to initiate the transfer process, which sped things up.

According to the Simards, Jean-Louis has always been a good candidate for succession. He’s resourceful, bold and versatile and he likes the forest. They believe these are essential qualities for the job. To be an owner, you also have to be dedicated. The work is demanding, sometimes you have to be away for several days, and you can be called at any time, day or night.

“These days, work is important, but family and leisure time are just as much. That’s why taking over a business is a decision that has to be made as a couple.”

A succession plan to manage expectations

“The transfer is going well,” Régis maintains. “There are ups and downs. The successor has expectations and, as transferor, I had some as well. With good communication, we can find common ground. This is not the same as a sale. You want the successor to be able to keep the business.”

“Everything is going smoothly,” says Johanne. “There are considerable challenges in this transfer, the successor is our nephew-in-law, we wanted it to go well. Having an external consultant as intermediary to coordinate everything helped. We wanted a win-win for everyone.”

Régis goes on to say, “There are hundreds of ways to transfer a business. For us, it was important that Jean-Louis not be financially overwhelmed, otherwise he wouldn’t have been able to continue. We needed sound management and the support of experienced people to find the best plan to ensure the company’s longevity.”

For the future, Régis Simard would like to see the company maintain its industry position while continuing to offer the same quality and expertise that characterized it from the onset.

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Pierre Fortin
Partner | CPA | Management consulting

The customer experience is a hot topic. However, more than simply being a buzzword, it’s an essential business strategy component that can no longer be pushed to the back burner or ignored.

Focussing on the customer experience can in fact help you:

  • Protect your income by fostering loyal customers;
  • Cut the costs associated with customer attrition and acquisition rates;
  • Improve the efficiency and effectiveness of your tools, processes and Customer “channels”;
  • Engage your employees thanks to a customer-focussed culture;
  • Foster greater productivity and decrease staff turnover;
  • Stand out from the competition – while copycat risks increase and margins decrease, the customer experience is a differentiating factor.

The customer experience is the result of all the interactions a customer can have with regard to a brand or business, or what the customer has seen and felt. It’s the art of making a positive, long-lasting impression.

Talking about the customer experience emphasizes the rational and emotional benefits underlying the purchase of a service or product rather than simply its characteristics. Therefore, it’s the customer’s perception that counts; you need to modify it to ensure the customer has a positive experience.

Let’s be honest: how well do you really know your customers? What kind of customer experience are you trying to provide? Which emotions are you trying to evoke? What are your customers really looking for? What creates value for your organization? And especially, how focussed is your organization on its clientele?

More loyal customers, enhanced reputation

It’s no longer enough to simply satisfy your customers. You need to make them loyal and encourage them to recommend you so that your organization can reap tangible benefits. Why is this important?

  • Recruiting a new customer costs five times more than retaining an existing one (TARP Institute – USA).
  • A dissatisfied customer will tell about 13 people on average, but only 1 out of 25 will actually contact you to complain;
  • A satisfied customer will tell five people;
  • On average, customer experience leaders achieve greater stock market returns regardless of economic cycles, according to a post entitled Is there a Return on Customer Experience Investments? published on the Watermark Consulting blog.

Where to begin?

With customers of course! First and foremost, is knowing your customers well and having a clear idea of the customer experience you wish to offer.

Make sure to know your customers well, in particular, their needs and expectations, but also their desires and the positive emotions they’re looking for by doing business with you. You even need to pinpoint the stereotypes influencing the perception of your organization and its services which can hinder a memorable customer experience if they’re not broken. This exercise will provide you with clear indications on the customer experience they’re seeking and what they’re expecting (your service attributes) during their journey with you. It’s important to understand that in a B2B situation, the customer is a multifaceted individual, with needs, expectations, desires, emotions and stereotypes that can vary in the fine print. In this case, maintaining close communication at all levels in the organization to be able to deal with these differences will be a winning strategy. This exercise might seem obvious, but even today, few organizations bother to investigate beyond the simple needs and expectations of their clientele…

Assess how your organization performs in the creation of the customer experience your clientele is looking for and that you’re willing to offer.

On the basis of a known, relevant customer experience management model, assess whether your organization is truly focussed on the customer and identify performance gaps in your customer experience management.

On one hand, how is the customer culture within your organization? Does the organization’s leadership foster efforts in this regard? Have you defined and communicated your customer promise or service values to your staff? Are your employees committed to attaining a common goal, which is to better serve the customer?

On the other hand, are your customer experience delivery systems performing and consistent? First, do the employees have a good understanding of the customer experience to be delivered? Are they trained accordingly and do they exhibit the key behaviours of the customer promise? Second, do your work processes, procedures and tools enable your staff to go beyond the call of duty for your customers? Is the physical and virtual environment that you offer in line with the customer experience you’re trying to provide?

Lastly, do your efforts result in actual gains and create value for your organization? Managing the customer experience is not only for being nice to your customers; your organization must be able to reap the benefits. Do you have loyal customers? Would your customers recommend you? Will your brand image and the organization’s reputation be enhanced?

Take action

The issue is not having performance gaps, but rather failing to address them! You need to take action.

You need to implement a program to eliminate gaps in the current customer experience and what you want to offer while paying particular attention to revamping the organization’s customer culture and improving the performance of the three customer experience delivery systems, i.e., employees, organizational processes and systems and the physical and virtual environment. All must be aligned with the experience you want to offer customers. Mapping the customer journey is an excellent way of defining the customer experience in detail at each point of contact between your customers and yourself and to determine improvement methods that will later be used in a bold, yet realistic and sustainable action plan.

Success factors

The first success factor is being able to rely on management’s unconditional commitment. Managers must send a clear message about making the customer experience the corner stone of the business strategy and fostering success in order to motivate the staff to contribute. Improving the customer experience is done through inspirational management and leadership that will engage employees and motivate them to attain this common objective.

Lastly, as more than 70% of customer experience review projects fail at the implementation stage, sufficient efforts must be deployed at that point to ensure the necessary changes are implemented and that improvements last. The active supervision of developments and the use of tools such as scorecards including specific indicators can be useful for increasing the chances of success of a customer experience review project.

Have we convinced you? Are you already on the right path?

06 Dec 2016  |  Written by :

Pierre Fortin is a partner at Raymond Chabot Grant Thornton. He is your expert in Management...

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