Montréal, March 17, 2011 – Considering that entrepreneurial succession is a major economic development issue, both in Quebec and Canada, Raymond Chabot Grant Thornton had hoped that the provincial and federal governments could reach agreement this year on legislative changes to prevent the adverse effects for taxpayers when transferring their business to family members.
“Despite the government’s announcements to favour entrepreneurship and entrepreneurial succession, such as the implementation of the Relève Québec Fund and of the Capital Anges Québec Fund, for which amounts of $50 M and $30 M are respectively allocated – measures that we welcome -, we must admit that the intergenerational business transfer problem remains whole,” said Tax Partner Luc Lacombe.
Legislative changes are overdue
While this is not a new issue, now, more than ever, we need equitable tax rules to promote entrepreneurial succession and ensure the continuity of our businesses. “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 transferring it to a family member,” stated Tax Partner Jean Gauthier.
One of the important ways to stimulate entrepreneurship would be to amend Section 517.1 of the Quebec Taxation Act and Section 84.1 of the Canadian Income Tax Act. On December 2, 2010, Raymond Chabot Grant Thornton sent a copy of its report, Business Transfers: Problems and Suggested Solutions, to Finance Minister Raymond Bachand. The report may be viewed at the following address: www.rcgt.com/business-transfers.
The report 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.
Specifically, under current 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 this company whose shares were sold is connected to the buyer after the transaction, that individual cannot benefit from the capital gains deduction.
“We are, nevertheless, optimistic that the Quebec and federal Finance Ministers will not delay in introducing the necessary legislative changes to support family business transfers. Since the entrepreneurial business rate has been decreasing for the past 20 years across Canada, and considering that entrepreneurial businesses in Quebec would suffer a major 13.9% decrease by 2018, government action is needed to support a strong, productive entrepreneurial sector, particularly since the Quebec government is in the process of developing an entrepreneurial strategy,” added Jean Robillard, President and Chief Executive Officer.
2011-2012 Quebec Budget Tax Bulletin
Raymond Chabot Grant Thornton is also taking this opportunity to release its tax bulletin summarizing the main budget changes for individuals and businesses announced today by the Quebec Finance Minister. The summary may be viewed at the following address: www.rcgt.com/taxbulletins
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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