Federal Budget, April 21, 2015

It was to be expected that in this first balanced budget in the Conservative government’s eight years in power and, in the context of an election, measures would be introduced to stimulate wealth and employment, pivotal issues for the country’s growth.

The 2015 Economic Action Plan tabled today by the Honourable Joe Oliver, federal Minister of Finance, has provided for no income or commodity tax increases and includes attractive incentives to support Canadian individuals and businesses.

Among the measures to sustain Canada’s economic growth, of note is the decrease in the small business tax rate to 9% as of 2019. The current 11% rate will drop gradually, in 0.5% increments, starting in January 2016.

Another measure that supports the Canadian manufacturing sector’s competitiveness is the 10-year investment incentive for manufacturing businesses. Additionally, to encourage ongoing investment in machinery and equipment and increase productivity, manufacturers will be entitled to an accelerated CCA of 50%, declining balance, for eligible assets acquired after 2015 and before 2016.

On the innovation front, the government is announcing it will provide an additional $1.3 billion over six years to the Canada Foundation for Innovation to assist Canadian researchers.

In order to modernise infrastructures and create jobs, the federal government has opted to provide $5.35 billion per year on average for provincial, territorial and municipal infrastructure under the New Building Canada Plan. Additionally, it is creating a new Public Transit Fund and providing an additional $750 million over two years, starting in 2017–18, and $1 billion per year ongoing thereafter.

Of interest for individuals is the increase in the annual TFSA contribution limit from $5,500 to $10,000 and a new home accessibility tax credit as of 2016. A 15% tax credit on a maximum amount of $10,000 in expenditures incurred for this purpose.

Upcoming consultation

Lastly, there will be a consultation to review “the circumstances in which income from a business, the principal purpose of which is to earn income from property, should qualify as active business income.” Interested parties are invited to submit comments on the difference between an active versus an investment business by August 31, 2015.

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

 

Next article

Gilles Fortin
Lead Senior Director | B.A.A. | Financial advisory

There are multiple reasons for selling a business. For some sellers, age, the approach of retirement, a sudden event such as illness, or simply the desire to do something else, lead them to consider selling their business.

In this context, regardless of the reasons for selling, the process is complex and ideally should be the object of a planned approach. This requires a major investment of time and effort to obtain the best possible price and favour the company’s sustainability.

1. Can I do it alone?

To carry out this process, you must consider several aspects involving specialists, such as business valuators, legal specialists, financiers, tax advisors and specialists in negotiation.

2. What is the value of the business?

Entrepreneurs usually know little about the value of their business. For many of them, the selling price of the business is based on the amount of money they want for their retirement. In this regard, a business valuation should be obtained before engaging in a selling process, so that a good basis for negotiation is established. Not only must the company’s assets be appraised, but its fair market value must be established.

3. What about taxes?

Tax planning related to the transaction is also essential. It needs to be planned methodically, because a shareholder who sells his company’s shares (and not the assets) has the right to a capital gains exemption of up to $800,000, if he meets certain very specific criteria. For entrepreneurs who want to sell their business so they can constitute their retirement fund, this tax benefit becomes especially important.

4. Have you established a communications and marketing strategy?

In the process of selling a business, communication is essential, both with the buyer and with the team in place within the business and the key employees. Is there internal interest, or a risk of losing one or more key employees?

5. Can you control your emotions?

Entrepreneurs often have invested a large part of their lives in the business. They are involved both in human and financial terms. It is therefore completely normal to be emotionally involved when you consider divesting your life’s work.

But there is no place for emotionalism in the process of selling a business. For this reason, support to the seller by a person who has no interest in the business is very beneficial in such transactions.

Just as entrepreneurs are experts in their industry, entrepreneurs involved in a selling process should call on the best resources at their disposal. Ultimately, the wealth he needs to ensure his retirement is in question.

31 Mar 2015  |  Written by :

Gilles Fortin is your expert in corporate finance for the Québec office. Contact him today!

See the profile

Next article

Break out the champagne! The Finance Minister is (finally) doing something about the unfair taxation that financially penalized business owners who want to transfer their company to family members, an issue on which Raymond Chabot Grant Thornton has made numerous representations since 2010. Starting in 2017, owners of businesses in primary industries and the manufacturing sector will be benefit from tax fairness when transferring their business to a person with whom they have a non-arm’s length relationship.

Given that more than 70% of Quebec’s SMEs are family-run businesses, the firm has insisted that intergenerational business transfers no longer be fiscally penalized, since this has impeded economic growth. The Finance Minister’s decision is a big step toward tax fairness. However, efforts must continue so that this measure is extended to other sectors and the federal government also takes similar action.

Another significant action for succession contained in the March 26 budget is a $2 million investment per year over the next three years to:

  • extend the business transfer services provided by Centre de transfert d’entreprises du Québec to all regions; and
  • bolster mentoring services in succession by funding the Fondation de l’entrepreneurship’s Réseau M 2.0 project.

We believe it is nonetheless important to support our sellers with just as much attention. This is why we feel there is a need to create a fund to support creators of wealth so they can make use of external professionals in the transfer process and when developing a succession plan. The firm pointed this out to the Finance Minister during the prebudget consultations.

Balanced public finances depend on the totality of business owners who hire, develop, innovate and invest in Quebec. However, this base is being dangerously weakened as Quebec gears up for the biggest change in SME management that it has ever seen.

While the buyers are highly visible and have many tools with which to prepare, the sellers, on the other hand, are less conspicuous. And yet, many studies show that about one-third of business owners will retire in the next five years. Of these, 91% have no formal succession plan.

Why have we fallen so far behind? The answer: business owners have concerns that are making them slow to take action. The situation can be attributed largely to “entrepreneurial mourning”. For entrepreneurs, it is often difficult to step back from the business world. It is not easy to leave the company they founded, built, supported and were fully invested in. They are often very involved in their communities and have concerns about preparing for retirement.

Our leaders want to stay active in their companies, and it is important that they do so in order to ensure the transfer of knowledge, mentoring and a smooth transition. They must also have confidence in the buyers and understand the generational differences that are their strengths. There are obvious human issues that should not be underestimated in the business transfer process. It is no surprise that effective planning takes two to eight years.

Quebec’s Finance Minister will publicly announce the conditions to ensure that the transfer of family business benefit from an exemption in the next year. We hope that the succession plan will be one of the criteria for certifying eligibility.

Raymond Chabot Grant Thornton has helped more than 200 companies develop their succession plan and will continue to be a partner of choice for dynamic companies here in Quebec.

Next article

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.