For Canadian companies to become increasingly competitive, a major review needs to take place. And not just any review: that of the Canadian tax system.
According to Emilio B. Imbriglio, President and Chief Executive Officer of Raymond Chabot Grant Thornton, “It’s time for our tax system to align with current entrepreneurial dynamics, since it’s become obsolete in many respects. The taxation of SMEs must be fair and efficient so that they can perform better, and it needs to foster innovation by more efficiently meeting the needs of 21st century businesses. Furthermore, why should our SMEs still pay income tax?”
Tax system adapted to globalization and business families
These days, countries and organizations do much to ensure that multinational taxation is competitive on an international scale. “While the effective tax rate of SMEs is higher now than that of certain Canadian multinationals, it’s essential to perform a thorough review of SME taxation to ensure that it’s competitive and allows today’s SMEs to become the major companies of tomorrow,” asserts Jean-François Thuot, firm Partner and Tax Leader.
The firm is calling for the total elimination of the business tax for SMEs with annual revenues below $500,000, provided that the amounts saved will be reinvested into productivity, employment and innovation.
Year after year, Raymond Chabot Grant Thornton does a great deal to ensure that SMEs benefit from a fair and efficient tax system that is competitive. “The firm supports CPA Canada’s recommendation to undertake a comprehensive review of the country’s tax system to reduce its complexities and inefficiencies,” adds Imbriglio. Such a review would clearly make the Canadian tax system more efficient. In his opinion, “tax incentives can only be achieved by reviewing the current system. We need to act quickly. And, in Quebec, why are we waiting to apply the Godbout Commission’s measures?” While this strategic exercise has proved to be extremely relevant, we are still waiting for more structuring measures to be applied.
A total overhaul is necessary. Currently, laws encourage our entrepreneurs to sell their business to the highest bidder rather than their children. Serge Godin, founder and Executive Chairman of CGI Group, recently challenged this issue publically. Jean-François Thuot, Partner, was quoted in this major La Presse article which detailed Mr. Godin’s appeal.
Tax unfairness in intergenerational business transfers needs to become a thing of the past
Raymond Chabot Grant Thornton is keenly interested in intergenerational transfer tax unfairness. The firm has been calling for changes to the Income Tax Act with respect to intergenerational business transfers since 2010, the year in which it sent a detailed report regarding this issue with possible solutions to the Canadian and Quebec Ministers of Finance. Since then, the firm has been regularly holding presentations with the governments so that they will quickly take action.
Emilio Imbriglio recently reiterated his call for the federal government to take action to support local business sustainability. In the pre-budget notice sent in February 2016 to Canadian Finance Minister, Bill Morneau, he mentioned specifically:
“In its 2015-2016 budget, the Government of Quebec adopted measures that would largely address this issue. As you know, in Quebec, business owners will benefit from the capital gains exemption [note: as of the tabling of the 2016-2017 budget, instead of January 1, 2017, as originally planned] if they sell their primary sector or manufacturing business to a company held by their children. In our opinion, this tax equity must also extend to all companies from the range of Quebec’s economic sectors. We believe it’s the federal government’s turn now to act quickly in this respect so that tax measures across Canada can generate a significant and durable impact.”
According to Raymond Chabot Grant Thornton, it’s apparent that the federal government needs to reach consensus with the Quebec government so that tax legislation regarding this issue can be quickly harmonized. Canadian business owners need to stop being penalized for selling their business to their son or daughter rather than a stranger.
This transaction type causes the seller to lose out on the capital gains deduction, representing nearly $825,000, which is not the case for third party transactions. “We will continue to hold the required presentations to encourage family business transfers and foster the success of our dynamic businesses from all economic sectors,” stated the firm’s President and Chief Executive Officer.