Steeve Vachon
Partner | CPA, CGA, M. Fisc. | Tax

Several mechanisms exist to reduce tax on capital gains. The capital dividend account (CDA) is particularly efficient. However, company shareholders do not seem to use it as much as they could. All it takes is sound planning.

The CDA is a mechanism provided under the Income Tax Act. It enables private companies (not public companies) to distribute tax-exempt amounts to shareholders. Though it is very efficient, use of the CDA must follow certain criteria.

The CDA in detail

The CDA is a type of account solely used for tax purposes. It is not a bank account and does not appear on the company balance sheet. This account contains a certain number of elements, including the following main ones:

• Excess of the non-taxable portion (50%) of capital gains over the non-deductible portion (50%) of the company’s capital losses;
• Dividend from other company CDAs;
• The proceeds from the company’s life insurance that exceeds the adjusted cost base (ACB).

Acting at the right time

The CDA is only useful if the company realizes gains, as shareholders may only receive payments when such is the case. If the company has losses, the amounts accumulated in the CDA will be reduced by the amount of these losses. This is why it is important to verify the CDA balance periodically because, from one year to the next, base on the company’s profitability, shareholders could withdraw tax-sheltered amounts.

The CDA and company life insurance

The CDA can also be used if the death benefit is paid to a company under a life insurance policy. In such cases, the amount payable to the CDA corresponds to the amount of the life insurance contract of which the company is a beneficiary that exceed the ACB. Significant amounts can therefore be tax-exempt through the use of this mechanism.

To take full advantage of this mechanism, appropriate planning is necessary, especially if share transfer is planned. Major amounts are at stake in such cases and the CDA can facilitate the transition between the seller and the buyer.

Lastly, it is important to fill out the required forms before proceeding with paying out the CDA dividends. Do not hesitate to call on our experts to determine the best strategies. They know the details of various programs well and can easily use them to your advantage.

30 Apr 2012  |  Written by :

Mr. Vachon is a partner at RCGT. He is your expert in taxation for the Sainte-Marie office. Contact...

See the profile

Next article

Pierre Fortin
Partner | CPA, CA | Management consulting

Although they often work in the background, municipal general managers play an essential role. This is particularly true for small municipalities that rely on reduced administrative teams and elected officials that often only work part-time.

Municipal general managers ensure that municipalities are managed consistently and continuously, which makes their role all the more important. Whether their work involves liaising with the municipal council and administrative team, providing strategic information so that the mayor can make informed decisions, or ensuring, alongside the team of civil servants, that actions are carried out in compliance with the multiple laws that apply to the municipal sector, general managers play a major role. For efficient municipal management, roles and authorities must be clearly defined, particularly for elected officials, civil servants and the general manager.

Complex Issues and Multiple Solutions

Managing a municipality is no simple task. There are often complex issues, numerous stakeholders and conflicting interests. The needs of citizens and businesses are becoming more costly, while municipal funding sources are lacking and closely tied to property tax revenue. It’s worthy to note that general managers in smaller municipalities often carry out more than one role; some even take on secretary-treasurer and public works manager tasks, among others.

As municipalities are given greater powers, their management becomes increasingly complex, yet the expertise required to carry out such tasks is not systematically available. This can represent a major challenge.

Although municipalities may have multiple issues, solutions must be adapted to each specific situation. However, it’s impossible for municipal administrative teams, under the leadership of a general manager, to be specialists in all areas. Solutions are developed on a case-by-case basis and often rely on examples from other municipalities, or even other countries.

Under the Spotlight

Indeed, few Quebec organizations are subject to as many audits as municipal authorities. In addition to all of the legislation and regulations municipalities must comply with, they must also report to various government authorities, and have a close relationship with their citizens who legitimately expect high-quality local services and unfailing management of public funds.

In light of this context, municipal managers need people they can count on. They must be supported, be able to count on a team of specialists who can provide appropriate information, and occasionally must call upon external or more knowledgeable resources so that decisions can be made in the interest of citizens and the municipality.

Major municipal projects must be carried out in close collaboration with municipal authorities, the general manager and civil servants. While municipal general managers often work in the background, their role and teams are indispensable for the long-term development of local municipalities and communities.

Article paru dans Magazine SCRIBE en 2012.

16 Apr 2012  |  Written by :

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

See the profile

Next article

A majority budget: on the road to a surplus for 2015-2016

Today, Canadian Finance Minister, the Honourable James M. Flaherty, presented the first budget of the Conservative majority government; his objective is to generate a $3.4 billion surplus as of 2015-2016.
Spending cuts will achieve savings of about $5.2 billion, representing less than 2% of program spending in 2016–17 or 0.2% of Canada’s GDP that same year.

Compared with other G7 members, Canada has fared well, despite the debt crisis and European banking crisis that continue to undermine the world economy. While Canada expects modest growth in the short term, the government has chosen to support business and entrepreneurs directly by encouraging innovation and prosperity.

To support research, innovation and entrepreneurship, the 2012 economic action plan will provide $1.1 billion over five years in direct research and development support and $500 million in venture capital. However, the significant Scientific Research and Experimental Development (SR&ED) Tax Incentive Program will unfortunately see a $1.33 billion reduction in business credits over five years. The SR&ED measures are summarized in this document.

Other measures include $165 million over two years for natural resource development and a streamlined review process for major economic projects in order to reduce red tape, encourage investors and contribute to the economic viability of major projects.

Lastly, one measure that affects all Canadians is the gradual increase of the Old Age Security age of eligibility from 65 to 67 for anyone born after March 31, 1958.

Please contact us for more information on the tax measures in this bulletin.

Next article

Jean-François Boudreault
Partner | Management consulting

At a time when the Quebec manufacturing sector is going through a challenging period, with the closing or offshoring of major businesses, such as Mabe and Electrolux in the Montréal region or Papiers White Birch in Québec City, managers must be particularly in tune with the productivity of their organization and employees.

Productivity doesn’t mean working more, but, rather, working more efficiently. Organizing work tasks, purchasing cutting-edge equipment or improving the logistical chain are all important aspects to consider. However, it’s important to remember that your employees are your organization’s most important asset, and one that can contribute the most to its development.

Employees, A Key to Success

It’s generally believed that employees who feel satisfied with their professional environment work better, serve clients better, work better with their business partners and thus, have a more positive impact on an organization’s productivity. While all of this may be true, there’s more; employees would also like to:

  • Have a relationship of trust with management;
  • Contribute to the organization’s culture and values;
  • Maintain a good work-life balance;
  • Have a working environment with good team spirit and pleasant inter-professional relationships;
  • Get involved in causes that they hold dear and receive support from their employer.

Eliciting Commitment Towards the Organization

Numerous surveys reveal that employees who are strongly committed towards an organization contribute to its growth up to two and half times more than do other employees. In a cross-Canada study published recently by Aon Hewitt, a company that specializes in HR solutions, it was observed that organizations that neglect employee mobilization risk losing their trained and experienced employees as well as the financial investment that goes along with training, recruiting and hiring new employees.

The highest performance is found in organizations that promote an organizational culture based on motivation and surpassing oneself, and that use this to attract qualified resources and retain motivated employees.

Ten Tips, One Goal

Here are ten tips that employers should keep in mind when managing daily activities in order to increase their employees’ level of commitment towards the organization:

  1. Provide a clear vision of the organization’s goals, expectations and objectives;
  2. Provide a detailed description of employee tasks;
  3. Ensure that employees understand their tasks and how they can contribute to the organization’s objectives;
  4. Provide clear feedback on the organization’s results;
  5. Recognize the efforts of committed and efficient employees;
  6. Offer competitive compensation;
  7. Provide career advancement opportunities;
  8. Offer professional development;
  9. Involve employees in decision-making;
  10. Make financial participation in the organization available.

 

Having a clear vision and an employee performance management structure based on the above are instrumental in creating an environment that is conducive to development and increasing employee commitment. Remember that employees are at the center of an organization’s success… and its challenges.

However, over and above the various initiatives that can be implemented to promote employee commitment, strong leadership is likely one of the best ways to motivate and mobilize employees.

20 Mar 2012  |  Written by :

Mr. Boudreault is a partner at RCGT. He is your expert in human resources for the Québec office....

See the profile