New filing requirements for trust will apply for taxation years ending on or after December 31, 2021.

As a result, many trusts that currently do not have to file a Trust Income Tax and Information Return (T3) will be required to file such a return annually. Additionally, extensive information regarding the identity of all trustees, beneficiaries and settlors will therefore have to be disclosed in the T3 return.

These new requirements will increase the administrative burden on trustees, especially for trusts providing for numerous beneficiaries. In order to avoid having to comply with these new requirements, consideration could be given to dissolving certain inactive trusts before December 31, 2020.

The following provides an overview of the new rules to help you prepare.

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To ensure their sustainability and growth, Quebec SMEs will have to overcome several major challenges in the short- and medium-term, particularly in terms of labour and technological investments.

These are the results revealed by a recent Raymond Chabot Grant Thornton (RCGT) survey of 300 Quebec business leaders. According to the telephone survey conducted by Léger, the main challenges they will have to face in the next three years are recruiting and retaining staff, and technological change and competition.

In the near future, market competitiveness and accelerating information processing are issues for most businesses.


 

Do you dream of international growth?

Consult our guide to cross borders successfully.

If you are thinking about acquiring a business, there are several things to consider.

Consult our guide on the steps to follow.


Stay competitive through the digital transformation of your business.

Consult our guide on technological innovation.


Rely on talent to ensure the growth and future of your business.

Consult our guide on recruitment issues.


Focussing on growth

Good news: Quebec SMEs were active enough in the past two years to ensure their growth in a context of increasing competitiveness. Accordingly, 62% of them carried out one or more development activities. The most common ones involved diversifying their product and service offering (37%), establishing strategic partnerships with other businesses (31%) and penetrating a new market (27%).

Some 8% of SMEs accelerated their development by carrying out an acquisition, a transaction that involves major challenges. These include integration ability – cited as a main challenge by 26% of acquiring companies – the implementation of a common culture and values (20%) and personnel management (17%).

International expansion was a growth method for 10% of businesses. More than half of them (55%) developed their presence in the United States, 47% in Europe and 15% in China. In most cases, the operation was successful: 79% of leaders stated that it had been profitable, and 21% even consider it very successful.

On the other hand, 10% of businesses that have not yet developed the international market plan on doing so within five years, a proportion that rises to 22% among companies with 100 or more employees.

Innovation

We often hear that innovation is at the heart of competitiveness. In this regard, 65% of companies consider their level of maturity to be fairly or very advanced compared to their competitors. However, 41% claim they don’t have the internal financial resources to develop innovation. In fact, half of the leaders say they are poorly informed about the financial resources available to support their efforts in this regard.

Digital shift

The survey also reveals that just over half of SMEs (57%) have not yet invested in the digital shift, even though it is their third most important issue. The most common investments are in cloud computing (17%), implementing or modifying computer programs (12%), and integrating management software (11%).

Accelerating information processing (for 51% of SMEs), client data security (43%) and the soundness of IT systems (35%) are also major technological issues, according to respondents.

While Quebec is positioning itself as a world leader in artificial intelligence (AI), one out of ten companies has already integrated AI technologies (6%) or plans on doing so in the near future (5%). Interestingly, in the construction sector, the proportion of Quebec companies that have already implemented artificial intelligence projects has risen to 20%, a possible indicator of the industry’s desire to breach its productivity gap.

Labour and organizational culture

Raised by 57% of SMEs, labour force issues are the main challenge for the next three years. To resolve this problem, Quebec companies are focusing entirely on training and skills development (83%).

In fact, more than half of the executives surveyed have created new training tools (61%), increased training expenses (57%) or implemented an employee development program (55%) over the past five years. Just over 40% of companies have also introduced continuing education incentives. These figures rise significantly among companies with 100 or more employees.

Social and environmental responsibility

One of the challenges faced by SMEs is the obvious need to adopt responsible practices. In fact, a high percentage of executives (90%) consider it important to do business with socially responsible suppliers.

Companies are already taking steps to achieve this. In the past five years, more than half of the SMEs surveyed have implemented actions to use less paper (83%) and fewer plastic or Styrofoam cups (71%), or to reduce their ecological footprint (53%). Four in ten companies (42%) introduced an environmental policy.

Furthermore, to contribute to the collective well-being, 46% of executives are involved as volunteers with an organization, and 22% of SMEs have a volunteer program that allows staff to volunteer their time to charitable organizations.

Inspirational successes

Do you recognize yourself in this survey because your company is facing one or more of these major issues? The success of outstanding leaders will inspire you to take on these challenges with flying colours.

To discover best practices in innovation, international expansion, corporate transactions and leadership, we invite you to read about the success stories of the Person of the Year Award finalists.

Study methodology: Telephone survey of 300 leading Quebec businesses with 10 to 499 employees, February 2019.

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Jean-François Poulin
Partner | B.A.A., Attorney, M. Fisc. | Tax

Do you own U.S. property or shares? Even if you’re not a U.S. citizen, your estate may be subject to tax.

You may be subject to U.S. estate tax if the market value of the U.S. property owned is greater than US$60,000. Your estate will then have to file an estate tax return in the nine months following the date of death, even if no tax is payable.

Property most often subject to estate tax includes land and buildings, U.S. securities (shares, bonds, ETF, etc.), tangible property located permanently in the U.S. (vehicles, boats, works of art, etc.), safety deposit box contents but not the funds in a personal U.S. bank account.

Estate taxes are calculated on the market value of the property using progressive rates ranging from 18% to 40%.

Calculating your tax credit

However, under the Canada-United States tax treaty, you are entitled to a credit in calculating the estate taxes. The credit is based on the proportion of property in the U.S. at the time of death to worldwide property.

As a result of this credit, generally, no estate tax is payable if the value of the worldwide estate is below the applicable exemption threshold, which is US$11.58M in 2020.

Your estate may also qualify for a marital credit if the U.S. assets are bequeathed to the person to whom you are legally married. Note that the Canadian capital gains tax can be reduced by deducting U.S. estate taxes.

Planning your estate

Legislation provides that in 2026, the estate tax exemption threshold will revert to the 2017 level of $5.49M. This exemption is a highly politicized issue and in our firm, we consider it more prudent to plan on the basis of a US$5.49M exemption.

In fact, it is essential to properly plan for what will happen at the time of your death, particularly in order to pay as little estate tax as possible and facilitate the transfer of ownership to your heirs.

How you hold your assets is especially important. There are a number of strategies to avoid U.S. estate tax, such as transferring the property to a Canadian personal trust or corporation and dividing the ownership of an asset.

It is recommended that you seek advice from an international tax specialist.

04 Feb 2020  |  Written by :

Mr. Jean-François Poulin is a partner at Raymond Chabot Grant Thornton. He is your expert in...

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Olivier Gariépy
Manager | CPA, CA, M.Fisc. | Tax

In the United States, each state has its own tax system, with specific rules, obligations and tax credits.

Canadian businesses exporting to the U.S. may have some state tax obligations in those states where they do business. The criteria vary by state.

These obligations are in addition to their U.S. federal tax and commodity tax obligations.

Additionally, many states have a variety of tax levying methods which could be based on income tax, gross receipts or net assets in the state, minimum gross receipts, etc.

According to the Tax Foundation’s 2019 tax rates, 44 states impose a corporate tax, with rates ranging from 2.5% to 12%. Four states (Nevada, Ohio, Texas and Washington) impose a gross receipts tax instead of corporate income taxes. The combined rate of the state corporate tax and U.S. federal tax (21%) is an average of about 25%, considering that state tax is deductible from federal tax.

Do you have nexus?

Nexus means you have a taxable presence in each state where you do business because you have a sufficient connection with the state.

Each state has its own definition of nexus, as a result, the types of activities that create a taxable presence vary from state to state. Generally, the following activities create nexus:

  • Having an office or a business establishment in the state;
  • Owning property in a state (e.g. consignment inventory);
  • Providing installation services in a state;
  • Having employees in a state who solicit the sale of services;
  • Delivering products in a state using your own trucks.

In some states, an economic presence may be sufficient to create nexus. The volume of sales in a state (in dollars and as a percentage of total sales) determines the level of economic presence that triggers nexus.

Note that the criteria for determining nexus for state tax differ from those for commodity tax purposes.

Tax exemptions

In many states, even if you have nexus, you may be exempt from the state income tax (and other types of tax, depending on the state), under Public Law (PL) 86-272.

In this case, your activities in the state must be limited to those stipulated in PL 86-272, i.e. soliciting the sale of tangible property (but not services).

Also of note, PL 86-272 is a federal law, and some states will not apply it to foreign corporations.

Additionally, if you have nexus, you may also be exempt from paying tax in states that are parties to the Convention Between Canada and the United States of America.

In this case, you must not have a permanent establishment in the state, as defined in the tax convention. For example, the presence of an employee in the U.S. who has authority to sign contracts is considered a permanent establishment but using independent agents or simply storing goods are not (for more information on this topic, consult our U.S. federal tax article).

Tax returns

You are required to file tax returns in every state where you have nexus within three and a half months from the end of your fiscal year end (two and a half months if it ends on June 30th). You can, however, apply for a six-month extension by paying the estimated tax.

Some states do not require the filing of tax returns if you use PL 86-272.

To summarize, there are numerous considerations when it comes to your tax obligations in each U.S. state where you do business. We invite you to contact our team if you have any questions in this respect.

31 Jan 2020  |  Written by :

Olivier Gariépy is a tax expert at Raymond Chabot Grant Thornton. Contact him today!

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