Pascal Leclerc
Partner | CPA, CA, LL.M. Tax | Tax

There are numerous specific tax measures that apply to franchises. It’s important to know these measures and we have, therefore, summarized some of them below.

A franchise right is an intangible asset that usually entitles the franchisee to operate a business for a specified or unspecified period of time in accordance with pre-defined rules.

When the franchisee pays to acquire a franchise right, the tax treatment for the franchisee must be determined. If a franchise right has a limited life, it is amortized over that period, which is usually the franchise contract term.

For example, if the franchise right is granted for a four-year period, one quarter of the cost of the franchise can be deducted as a capital cost allowance (CCA) during the four years.

The CCA makes it possible for the franchisee to reduce taxable income and taxes payable. The franchisor must declare the sale of the franchise right in income for the taxation year. Income from the sale of the franchise right is considered business income for the franchisor.

Renewal of franchise rights

If the initial franchise agreement provides for renewal periods, these periods must be analyzed to determine if they have to be included in the amortization period.

The Canada Revenue Agency considers that automatic franchise right renewal periods must be included in determining the franchise’s useful life because the franchisor and franchisee do not need to negotiate the renewal.

If the renewal must be negotiated or is conditional, the facts at hand must be analyzed to determine whether they should be included in calculating the initial amortization period. Lastly, if the renewal periods to be taken into consideration are such that the franchise can be renewed for an unlimited period, the franchise right is amortized on a declining basis at an annual rate of 5%.

To summarize, it’s important to analyze a franchise agreement because of the impact on the amortization period. The shorter the useful life of the franchise right, the higher the amortization cost. In this case, the accelerated franchise right amortization provides a tax benefit, however, an indefinite franchise right is amortized on a declining basis at an annual rate of 5%.

Refundable tax credit for tips paid to employees

The Quebec tax credit for reporting tips is a way to grant financial assistance to eligible employers who pay additional deductions at source and employer contributions on tips paid to employees.

Who can apply for the refundable tax credit?

The employer must carry on a business in the hotel or restaurant industry in Quebec (other than fast-food establishments where employees generally do not receive tips from most customers).

Additionally, the employees must receive tips directly or indirectly in carrying out their duties in the employer’s establishment. An employer can apply for the tax credit with respect to tips received by or attributed to employees who work in the establishment and for which the employer pays additional payroll deductions.

How to apply

The employer must use prescribed form TP 1029.8.33.13 to apply for the credit. The form is attached to the tax return filed with Revenue Quebec or submitted no later than 12 months after the income tax filing deadline.

The form is completed on a calendar year basis. If the corporation’s fiscal year-end is February 28, 2019, the corporation can claim the refundable tax credit for tips received or attributed during the 2018 calendar year.

Note that payroll deductions for which a corporation is claiming the tax credit must have been actually paid at the time of filing the form, other than vacation allowances and the related employer contributions.

To summarize, the refundable tax credit is equivalent to 75% of Quebec payroll deductions (Health Services Fund (HSF), Quebec Pension Plan (QPP), Quebec Parental Insurance Plan (QPIP), etc.) paid by the employer. The tax credit amount tax taxable at the time of receipt.

This article was written in collaboration with Belkacem Berredjem and Marie-Danielle Roy.

24 Apr 2019  |  Written by :

Pascal Leclerc is a tax expert at Raymond Chabot Grant Thonrton. Contact him today!

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On April 11, 2019, Finance Minister Vic Fedeli tabled Ontario’s 2019-20 budget.

This is the first budget for the Progressive Conservative government of Ontario. The Ontario government is projecting deficits until the 2023-24 fiscal year, when a small surplus is projected.

Read our budget summary online.

Your Raymond Chabot Grant Thornton advisor can help you determine the measures that apply to your situation.

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In connection with its March 21, 2019, the Quebec government announced the introduction of a new refundable tax credit encouraging SMEs to hire or retain workers aged 60 years and older.

Calculating the credit

Generally, eligible corporations can benefit from a tax credit relating to employer contributions paid in a calendar year with respect to workers aged 60 years and older.

The credit applies to taxation years ended after December 31, 2018, with regard to employer contributions paid after this date.

Consult our summary of this tax credit.

Your Raymond Chabot Grant Thornton advisor can help you determine which measures apply to your situation and assist you with the steps needed to benefit from these measures.

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The Grant Thornton International IFRS team has published the 2019 version of the IFRS Example Interim Consolidated Financial Statements, which has been revised and updated to reflect changes in IAS 34 Interim Financial Reporting (IAS 34) and other IFRS that are effective for the year ending December 31, 2019. In particular, they reflect the adoption of IFRS 16 Leases, which is effective for annual accounting periods beginning on or after January 1, 2019.

IFRS Example Interim Consolidated Financial Statements – Summary

The Interim Financial Statements illustrate a six-month accounting period beginning on January 1, 2019. They are based on the activities and results of Illustrative Corporation Ltd. and its subsidiaries (the “Group”) – a fictional consulting, service and retail entity that has been preparing IFRS financial statements for several years. The Group produces half-yearly interim financial reports in accordance with IAS 34 on June 30, 2019.

An entity complying with IAS 34 has a choice of preparing a condensed set of Interim Financial Statements or a full set of IFRS Financial Statements. These Interim Financial Statements illustrate a condensed set of Interim Financial Statements based on the requirements of IAS 34.8. Where a full set of financial statements is presented in the interim financial report, the form and content of those financial statements are required to conform to the requirements of IAS 1 Presentation of Financial Statements for a complete set of financial statements (IAS 34.9).

It is important to remember that the objective of preparing example interim financial statements is to illustrate one possible approach to interim reporting by an entity engaging in transactions that are considered typical across a range of non-specialist sectors. The attached financial statements are an illustrative example only and should not be considered comprehensive.

Resources

IFRS Example Interim Consolidated Financial Statements 2019 below.

Please note that this publication has not been modified from its original version.

For more information about this publication, please contact your Raymond Chabot Grant Thornton adviser.