In preparation for your old age, you regularly put money aside to fund your retirement projects. Here are a few tips for reducing your taxes at retirement and preventing the Tax Man from taking a significant chunk of your savings.

1. Since your personal tax rate is based on your total income, make sure to contribute to your spouse’s RRSP so that your pension fund will be divided between the two of you. Upon retirement, you will have succeeded in splitting your income, which will reduce your tax bill.

2. If your spouse’s pension income is lower than yours, because the RRSP contribution had not been maximized over the years, for example, every year, you can allocate up to half of your own pension income from your RRSP or pension fund, other than government funds. Make sure you do this every year.

3. Ask the Régie des rentes du Québec (RRQ) to share your pension. This way, you will reduce your income and the related taxes.

4. Since all tax-free investment income accumulating under your RRSP will be entirely taxable once it is withdrawn, be sure to hold investments that generate interest through your RRSP.

5. Benefit from the advantageous tax rates of capital gains and dividends by personally holding investments with this kind of income. Upon retirement, you will benefit from a 27% income tax rate applicable to capital gains and 40% for dividends.

Our recommendations

  • With regard to the 2nd tip, remember that public pension plan income (federal Old Age Security and the RRQ) cannot be split with your spouse.
  • If you receive income from your RRSP or private pension fund, you could benefit from a $2,000 pension credit each year that can reduce your taxes. Splitting your pension income will enable your spouse to also benefit from this credit.
  • When you retire, if you continue to receive investment income from non-RRSP investments, you will be able to continue deducting your investment and interest expenses.
  • Since the tax rules change regularly, make sure you review your retirement planning in order to reflect these changes.
  • Get advice from your tax specialist who can suggest strategies tailored to your personal situation.

This article was published in French in Journal de Montréal and Journal de Québec on 2018, February 17.

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On February 27, 2018, Finance Minister Bill Morneau presented the government’s 2018-2019 federal budget. This tax alert provides a summary of the tax measures proposed in the budget.

As expected, included in this year’s budget is the draft legislation to address the perceived tax advantage enjoyed by business owners when investments are made through their private corporations instead of personally. The government’s concerns around this matter were originally brought forward in the July 18, 2017 consultation paper, Tax Planning Using Private Corporations. Due to significant push-back from the business and tax communities in relation to this specific concept, the government assured effected taxpayers that any legislative response would include grandfathering. As discussed further below, the Budget 2018 proposals in relation to passive income revolve around a grind of the small business deduction based on associated company investment income and a new refundable tax pool concept. Other specific matters addressed in the July 18, 2017 consultation paper, specifically around income splitting, were previously addressed by way of draft legislation issued in December 2017.

There are no additional changes to the corporate tax rates from those previously announced in the fall economic statement for small business corporations. The budget also did not include any changes to the personal tax rates and tax brackets.

Despite speculation over the last couple of years, the government did not increase the capital gains inclusion rate or provide any specific measures related to the Scientific Research and Experimental Development (SRED) program.

The budget, however, did include measures to combat aggressive international tax avoidance (i.e., the use of so called “tracking arrangements” and the use of transactions involving partnerships and trusts to distribute tax-free distributions to non-resident shareholders). The government also indicated that it will continue to work with its international partners to improve international dispute resolution, and to ensure a coherent and consistent response to fight cross-border tax avoidance.

Proposed consultations on tax measures

Consultations on the GST/HST holding corporation rules
The government indicated in its budget that it intends to consult on a Goods and Services Tax/Harmonized Sales Tax (GST/HST) rule, commonly referred to as the “holding corporation rule,” which generally allows a parent corporation to claim input tax credits to recover GST/HST paid in respect of expenses that relate to another corporation. More specifically, where a parent corporation is resident in Canada and is related to a commercial operating corporation (i.e., all or substantially all of the property of the corporation is for consumption, use, or supply in commercial activities) and the parent corporation incurs expenses that can reasonably be regarded as being in relation to shares or indebtedness of the corporation, the expenses are generally deemed to have been incurred in relation to commercial activities of the parent corporation.

The government intends to consult on the limitation of the rule to corporations and the required degree of relationship between the parent corporation and the commercial operating corporation. The government also intends to clarify which expenses of the parent corporation are incurred in relation to shares or indebtedness of a related commercial operating corporation, and therefore qualify for input tax credits under the rule.

Consultation documents and draft legislative proposals regarding these issues are expected to be released for public comment in the near future.

Click here to download the report (PDF)

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Gaston Fournier
Manager | M.A., CHRP | Human resources consulting

In the context of evolving markets and generational changes, it is vital to establish a competencies development plan to address the resulting challenges.

In many cases, business transferors have an entrepreneurial profile; this does not necessarily correspond to the typical definition of managers. They enjoy being in the thick of things, using a trial and error approach, relying on their business instincts. As a result, they often have an informal, somewhat patriarchal management approach, with few rules, little structure and no management programs.

The transferees, on the other hand, will likely be facing different challenges such as:

  • Market growth,
  • More employees,
  • Specialization and increased demands,
  • Financial and legal controls.

New organizational needs may arise in terms of the structure (official organizational chart), internal operations (management committee, management scorecards and marketing plan) and human resource programs (employee handbook, compensation structure, etc.).


Prepare a profile

It’s essential to clearly define the required skills for the management positions while building in some flexibility to share responsibilities. For example, among others, a general manager should have strategic vision, finance skills and the ability to delegate.

Assess competencies

The transferees’ current abilities should then be evaluated using a variety of tools: analysis of their experience, behaviour interviews, psychometric and aptitude tests. A common misconception in many family businesses is that management skills are innate, this must be avoided at all costs. Some transferees may not want a management role, they may prefer to be on the operations side. Properly evaluating their profile will be useful for both them and the business.

Draw up a plan

Lastly, a competency development plan should be drawn up for each transferee filling a key position to ensure that they are able to take on that role efficiently. There are numerous options: training, internal or external coaching, discussion groups, etc. The transferor could serve as a mentor, but this role should be clearly defined. The transferor’s knowledge and experience can then be passed on to the successors and foster a successful transfer.

A business’s activities can be looked at from many perspectives: rational, financial and operational. These are significant management requirements, but the human aspect is just as important, and in a business transfer context, it is most often at the heart of discussions. Psychometric tests and a competency development plan are key to the succession plan discussion and implementation process to ensure a smooth transition.

Contact an expert in your region to find out how Raymond Chabot Grant Thornton can support your business transfer process!

Watch this video (in French) about Le Brise Bise.

26 Feb 2018  |  Written by :

Mr. Frounier is a manager at Raymond Chabot Grant Thornton. He is your expert in human resources...

See the profile

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The sale of a business is generally one of the most important transactions of an entrepreneur’s life, and often, the most complicated. Moreover, when this is a family transfer, the transaction could be even more sensitive, given the emotional aspects involved that can influence the sales price.

In any business transfer, “the” big question that keeps coming back is: “How much is my company worth?” The challenge is to determine a price that reflects the fair value of the SME, which satisfies both the transferor and transferees, and that ensure the business’s longevity.

This is why it is essential to establish the business’s value with a thorough, objective and structured process.

Avoid conflicts

For entrepreneurs who dedicate their lives to building their SME, transferring it can be a painful, emotionally charged experience. Also, as they rely on the proceeds from the sale to fund their retirement, in their eyes, their business is worth a lot of money…sometimes more than its fair value.

If they have children, entrepreneurs usually want them to take over the business, but this is where two perspectives and two realities may collide. On one hand, entrepreneurs want to get the most money possible for their SME. On the other hand, the acquisition of the family business is a major investment for the children; do they have the financial means? For the children, the value of the business equals their ability to pay.

These issues could cause resentment and tensions within the family. Using the services of an expert who can give transferors and transferees a fair and neutral opinion about the value of the business, can reduce the risk of conflicts. Furthermore, this ensures a fair treatment for the children who will not be involved in the business after the transfer.

Main traps to watch out for

Business valuation can include several traps. How many times have we heard entrepreneurs propose unbelievable amounts about the value of their SME!

Numerous entrepreneurs tend to use a market-based valuation method. One of the most popular calculations, based on transactions of comparable businesses, consists in multiplying earnings before interest, taxes, depreciation and amortization (EBITDA) by a multiplication factor.

The problem is that transferors tend to overestimate this factor, by relying on hearsay because it’s difficult to obtain reliable information about comparable transactions. In fact, unlike real estate transactions, there is no register where the sale prices of businesses are recorded.

Instead, business valuation experts prefer a performance- or earnings-based valuation method, which essentially relies on the business’s ability to generate earnings. This method therefore procures a more precise measurement of the SME’s fair value.

A few other key points to consider when evaluating a business

  • Don’t forget any assets or liabilities.
  • Take into account capital investments required to support the business’s activities.
  • EBITDA does not include interest on debt. Therefore, don’t forget interest-bearing debt in the calculation of the business’s value.
  • Consider unusual salary adjustments and performance bonuses that might have influenced EBITDA in the course of the last year.
  • Do not count the economic benefit for the business of owning a building twice. If you assess based on earnings and the business owns its building, the economic benefit of this asset is already included in earnings (since the business does not pay rent). Don’t duplicate its value by adding the building’s value to that of the business’s activities.
  • Take the time to perform a due diligence review before buying a business, that is, one that draws up a detailed portrait of the company’s financial, commercial, legal and operational aspects.
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One last tip

Above all, do not try to sell the business to your children if they don’t have the financial ability to buy it at its fair value. Consider other solutions that would benefit all. For example, you could use the proceeds from the sale of your SME to help your children start up a new business or invest in other projects with them.

Would you like more information about the business valuation process? Don’t hesitate to contact our experts. They will be pleased to help you.