Montréal, March 22, 2011 – Raymond Chabot Grant Thornton reiterates the need for tax equity in connection with business transfers to family interests, while taking the opportunity to send taxpayers its summary of the main tax measures in the federal budget. The 2011 federal government budget highlights may be viewed at: http://www.rcgt.com/en/budget-annual/staying-the-course/.
Call for tax fairness on business transfers
In the wake of the recent provincial budget, Raymond Chabot Grant Thornton urged the Government of Quebec to make the necessary legislative changes without delay so that business transfers to family interests are no longer at a disadvantage. “Today, we are making the same call for tax equity to federal Finance Minister, James M. Flaherty. We understand that difficult choices must be made when preparing a budget, but considering that entrepreneurial succession is an important issue for Quebec and Canada’s economic development, we had hoped for immediate changes,” stated Jean Robillard, President and Chief Executive Officer.
Our report, entitled Business Transfers: Problems and Suggested Solutions, that we sent to Mr. Flaherty on December 2, 2010, suggests ten possible solutions to offset the tax bias affecting business transfers to family members. “More specifically, these suggested solutions aim to correct the inadequacy between the reality of the business world and the current taxation system, by proposing changes to the tax laws that would support intergenerational transfers that meet an economic reality criterion,” stated Suzanne Landry, Raymond Chabot Grant Thornton University Partner, HEC Tax Professor and the report’s lead author.
One of the important ways to stimulate entrepreneurship would be to amend Section 84.1 of the Canadian Income Tax Act, because, believe it or not, it is usually more beneficial for business owners to sell their company to a third party or even foreign interests rather than transfer it to a family member,” stated Tax Partner Jean Gauthier.
Raymond Chabot Grant Thornton wishes to reiterate, once again, that, under both federal and provincial legislation, capital gains are considered as a deemed dividend when an individual disposes of shares of a company resident in Canada, for a cash consideration, to another company that is not dealt with at arm’s length. When the company whose shares were sold is connected to the buyer after the transaction, the seller cannot benefit from the capital gains deduction.
“Considering that the entrepreneurial business rate has been decreasing for the past 20 years across Canada, that only 3,000 Quebec entrepreneurs aged between 30 and 44 would be new business owners by 2018, that is, ten times less than in Ontario, and that entrepreneurial businesses in Quebec would suffer a major 13.9% decrease by 2018, there is an urgent need to act! We hope that the governments will reach agreement quickly and make the necessary legislative changes to ensure our economic competitiveness, long-lasting businesses and entrepreneurial succession without tax bias,” concluded Jean Robillard.
About Raymond Chabot Grant Thornton
Founded in 1948, Raymond Chabot Grant Thornton is a leader in the fields of assurance, taxation, consulting, business recovery and reorganization services. The Firm owes its success to a team of over 2,000 people, including over 225 partners in more than 90 offices in Quebec, eastern Ontario and New Brunswick. The scope of its network has made the Firm the leader in its sector of activities. Additionally, for more than thirty years now, our Firm has also been a member of Grant Thornton International Ltd., providing its clientele with access to the expertise of member and correspondent firms in over 100 countries.
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