Would you like to reduce your income taxes? Proper tax planning should be a year-long activity. However, there is still time to implement a few strategies that could reduce your taxes. Furthermore, certain measures coming into effect as of 2024 should be taken into consideration.

The following are a few simple, effective strategies that can be implemented before the end of 2023 or early in 2024. Don’t hesitate to contact your Raymond Chabot Grant Thornton advisor who can help you determine the measures that apply to your situation.

Making a gift to an heir during your lifetime has tax implications that you need to be aware of in order to make the best choice.

A gift is essentially a gratuitous contract whereby one person (the donor) transfers ownership of property to another person (the donee).

The donor is therefore poorer and the donee is richer because the transfer is made without consideration.

What is the property in question?

Generally, gifts include the following:

• Money,
• Shares of private corporations,
• Investments (listed shares, bonds, investment funds, etc.),
• Properties (primary residence, secondary residence, rental property, land).

Depending on the nature of the property transferred and the relationship of the donee to the donor, the tax consequences will be different. You must therefore be aware of these different impacts before undertaking the transfer.

Tax impacts similar to a sale

For tax purposes, the general rule is that a gift is considered a deemed disposition at fair market value of the transferred property.

This has the same tax implications for the donor as a sale, such as a capital gain or loss and a recapture of capital cost allowance for depreciable property, if applicable (e.g., a rental property).

When the donee disposes of the property at a later date, the resulting tax implications will have to be declared in the donee’s own income tax return.

Gift of money

There is no tax payable by the donor or the donee on a gift of money to a family member.

Exception between spouses

Where a gift of property is made to a spouse or common-law partner, there is an exception to the general rule mentioned above.

Provided certain conditions are met, the disposition is made at the cost (also known as the “adjusted cost base”) of the property or, in the case of depreciable property, at the amount equivalent to the undepreciated capital cost (UCC). This exception is to the donor’s advantage since at the time of the gift there is no amount to be included in income.

In the event that the donor wishes to trigger tax consequences at the time of the donation, the donor may elect to transfer the property at fair market value rather than cost.

Attribution rules and tax on income

Once the property is transferred to another person (spouse or common-law partner or minor children), there are special rules for the taxation of income (losses) from the property and capital gains (losses) from its subsequent disposition. These are known as “attribution rules”.

Essentially, these rules are designed to prevent the transfer of property income or capital gains to a donee who is taxed at a lower rate than the donor.

As you can see, there are several tax rules involved in a gift that you should be aware of before transferring the property to avoid costly mistakes.

Updated on November 20, 2023

In the current inflationary context, SMEs are facing many challenges. What are some strategies for coping?

Inflation is hurting SMEs. In addition to competition from web giants in online business, SMEs in all industries are facing labour shortages, resulting in higher wages, higher procurement costs and less flexibility from suppliers.

Are you an entrepreneur experiencing difficulties? Here are some tips to help you deal with these issues.

Analyze your data

Nothing is more important than analyzing your financial situation and your results based on the data collected. The more you know about your market and your situation, the better you can act and make the right decisions.

Here are the steps involved:

• Analyze your data over a three- to five-year period;
• Review changes in your contribution margin;
• For each product or service, calculate your costs, profit margin and breakeven point;
• Determine which products or services are profitable or unprofitable;
• Keep track of your fixed costs such as rent and insurance;
• Ask yourself what your competitors are doing: when do they increase their prices?

In short, take stock to understand what is working and what is not and react quickly.

Review your rates and offering

Some of your products or services are cash cows and others are black holes. Keep the ones that generate the most money. In addition, it is important to work in collaboration with:

• Your sales team: they are in the field and will undoubtedly have some interesting solutions to suggest.
• Your clients and suppliers: in retail, for example, you can implement discounting strategies or bigger batches.

Consider whether it would be appropriate to charge for additional services such as storage, delivery or return services, packaging or product customization.

Optimize operational performance

In-house work processes can consume time and energy and even cost you money. You need to optimize your processes to make them flow.

• If you’re in manufacturing, ask yourself how to reduce your factory downtime.
• Work on the quality of your service to limit rework and returns. This will help you maintain your margin.
• Invest in digitization. The initial cost may be high, but investing in new technologies will save you money in the long term and increase your business’s efficiency.
• Robotize your administrative processes

Manage human resources strategically

Salaries are not the only thing your organization can leverage. There are many variables that come into play and you have some power to implement or improve them.

• Limit inflationary wage increases. Other than salary, what other benefits can you offer your employees?
• Come up with creative ideas to keep your compensation competitive.
• Build a strong employer brand that will help retain your employees.
• Make sure you make employee onboarding a success.
• Integrate training programs into the company.
• Involve your employees in cost reduction improvement projects. They have ideas too.

Innovate

What you do today may not work in the future. It may be worthwhile to change your manufacturing formulas to reduce your input costs.

For example, create dedicated innovation teams to look at improving or changing services or products, formats, derivatives and replacement parts.

Think about ways to optimize the way you make products or deliver services. This can be done by incorporating technology, changing your work processes or outsourcing some costly activities to suppliers who have more expertise than you.

Improve procurement management

This is a part of your business that warrants close analysis and monitoring.

You can, for example, establish partnerships with your suppliers to see how you can do better business together.

Be careful to distinguish between sourcing and buying: sourcing means comparing suppliers’ offers and then requesting bids. Sometimes it’s best to choose not to sell certain items and keep only the most cost-effective ones. You need to build strong partnerships and look for alternative solutions.

Keep an eye on the market and learn about potential suppliers and partners.

Define a clear vision and strategy

What is your objective? Are you looking to cover cash flow? Fixed costs? Improve gross margin? By using data, you can adjust your strategies and generate revenue in a different way.

• Set clear goals and communicate them;
• Involve your employees in the solution;
• Measure improvement and celebrate success;
• Align compensation with gains;
• Have a contingency plan.

Prepare financial forecasts

If your company is experiencing difficulties or if you’re looking for shareholders or business partners, preparing a financial forecast for a 12 to 24 month period will allow you to demonstrate to them that the company is in fact viable, by implementing a very specific action plan.

The document must demonstrate that your plan is sound and reassure your current or future partners. The business outlook should be translated into a financial forecast. Don’t forget that financial partners often evaluate entrepreneurs their responsiveness.

• Reflect on the impact of the various measures;
• Determine short- and medium-term funding requirements;
• Analyze sensitive points and break-even points;
• Identify ratios;
• Identify internal and external risk factors;
• Establish the indicators to be followed in order to maximize the plan’s chances of success;
• Review the budget regularly.

To survive these inflation-driven changes, you need to adapt by reviewing your action plan. You need to update your forecasts to reflect current conditions, review your costing and look at your operational performance.

Inflation is not your fault, but you have the power to adapt. For some companies, this change can even become a competitive advantage. Don’t hesitate to consult an expert who can help you see things clearly.