Budget 2015-2016: The Table is Set for Wealth Creation

Provincial budget, March 26, 2015

In his second budget, Quebec Finance Minister, Carlos J. Leitão, has set the table for wealth creation in two ways: by returning to budgetary balance and by bringing a breath of fresh air, from a tax perspective, for wealth creators: our dynamic local businesses.

Tax measures

The budget includes over twenty measures drawn from the report of the Québec Taxation Review Committee. Among these, of note is the capital gains exemption, which will be available as of January 1, 2017, when business owners sell their business to a corporation owned by their children (or to a non-arm’s length party). Raymond Chabot Grant Thornton has been lobbying for such a tax equity measure since 2010. However, it will only apply to business in the primary and manufacturing sectors.

Additionally, a gradual decrease in the general corporate tax rate has been announced. As of January 2017, the general corporate income tax rate will be cut by 0.1 percentage point a year until January 1, 2020, dropping from 11.9% to 11.5%. This reduction represents a decrease in the tax burden of Quebec businesses of about $120 million.

More specifically, in the case of SMEs in the services sector, there will be a gradual reduction of the Health Services Fund contribution rate from 2.7% to 2.25% as of January 1, 2017. On full implementation, this measure represents an annual decrease in the tax burden of $194 million.

SMEs in the primary sector for their part will benefit from the same tax rate as those in the manufacturing sector as of January 1, 2017, that is 4%. The rate reduction from 8% to 4% will affect about 6,500 SMEs and represent an annual reduction in their tax burden of $28 million.

However, part of the tax reduction is financed by SMEs in the service and construction sectors with no more than three employees that will see an increase in the tax rate from 8% to 11.8%, as of January 1, 2017. On full implementation, this will result in a $207 million increase in their tax burden.

Moreover, some tax credits are increased or expanded, including the following four:

  1. The tax credit for the integration of information technologies in manufacturing SMEs is reinstated and broadened to include the primary sector;
  2. The minimal tax credit rate for the production of multimedia titles is increased from 30% to 37.5%, with a fiscal assistance cap of $37,500;
  3. The tax credit for the development of e-business is increased by 6 percentage points and the fiscal assistance cap per job is $25,000;
  4. Lastly, the tax credit for investments relating to manufacturing and processing equipment for the regions, which was to end in 2017, is extended until 2022.

Other notable measures

In business succession, the budget provides for investments of $2 million per year over the next three years to:

  • extend to all regions the business transfer services offered by the Centre de transfert d’entreprises du Québec; and
  • strengthen mentoring services for business successors by financing the Réseau M 2.0 project of the Fondation de l’entrepreneurship.

Additionally, to further stimulate the economy, the Quebec government is announcing the acceleration, for the next four years, of $1.4 billion in public investment projects.

We invite you to read the following pages for an overview of the main measures.

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What this means for the construction industry

The International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board have issued their new standard on revenue – IFRS 15 Revenue from Contracts with Customers (ASU 2014-09 or Topic 606 in the U.S.). This bulletin summarizes the new requirements and what they will mean for entities in the construction industry that apply International Financial Reporting Standards (IFRS).

 

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This bulletin summarizes the new requirements of IFRS 15 Revenue from Contracts with Customers and what they will mean for entities in the manufacturing industry that apply International Financial Reporting Standards (IFRS).

To view this publication, click on the “Download” button on the right.

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Christiane Caisse
Principal Director | CPA, CA, M. Sc. | Management consulting

The operating budget is an essential tool for the management of a company. Indeed, it allows, among other things, to address the concerns of the banker, test different scenarios and manage its human and financial resources. However, to be truly effective, it must be prepared methodically and strategically.

Conditions for success

First, the budget should be planned according to the vision, strategic plan and objectives of management. For example, if a Quebec company wants to conquer the rest of Canada’s market, the budget must reflect this ambition and not only include sales expectations in Quebec. Then, the related objectives must be ambitious and stir people into action. Indeed, one might tend to underestimate the budget by saying that they will be able to manage it and to win the banker’s favor. However, a realistic budget demonstrates not only the seriousness of the business, but also the quality of management: the vision of the entrepreneur and his ability to anticipate things and plan and set goals (realistic but ambitious).

Ensuring to communicate the objectives related to the budget is also an important factor for success. Concerning sales, for example, a seller may direct its work according to the objectives. It is also a great way to mobilize the team and empower every person concerning the elements under their control. Finally, for the budget to be a really effective tool, it will be necessary to plan it before the beginning of the year, to be sure to have only one official version and to be sure that it does not present too many details and that it is flexible during the year in the event that an interesting opportunity arises.

Methodology

The usefulness of the budget also lies in the way of conceiving it. A good methodology to establish the budget consists in:

Using projected sales as a basis
In the case of a company that is in its second year of operation, it is possible to rely on sales of the previous year, including the expected growth and inflation. For a start-up company, it is an estimate. In both cases, the estimates may be based on facts such as signed contracts, the volume of potential customers to approach, workforce hiring to come, purchase of equipment, premises, etc.

Preparing the budget as the internal financial statements
Adopting the same structure for the budget as that of the financial statements facilitates the comparison of the data, the measurement of the differences and then, subsequently, the decision making.

Gathering and properly documenting the assumptions
The assumptions are used for explaining the amounts included in the budget. They involve sales and expenses. For each of these aspects, assumptions are made taking into account the different elements.

1. Sales

They allow to track the overall growth of the sales figure. Sales include:

  • Projected sales by product or service or territory,
  • Business volume by customer.
2. Expenses

They reflect a good knowledge of the cost structure and help plan the resources needed to achieve the projected sales. It is necessary to examine historical data in order to establish them. Expenses include:

  • Factory overhead,
  • Selling expenses,
  • Administrative expenses,
  • Financial expenses based on debts,
  • Amortization.

In general, the assumptions can be made on a monthly basis to reflect cyclical or seasonal activities, or they can be divided by 12, which is standard practice in the case of a start-up company.

If you are to prepare a budget for your business and want to get advice from a professional, do not hesitate to contact us. Our team will be happy to guide you through the process.

03 Mar 2015  |  Written by :

Ms. Caisse is your expert in Financial Advisory Services for the Sherbrooke office. Contact her...

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