2019 Federal Budget: Raymond Chabot Grant Thornton Responds and Publishes Its Tax Summary
Ottawa, March 19, 2019 – Raymond Chabot Grant Thornton releases its tax bulletin drafted today by a team of experts present at the lock-up and makes a number of comments pertaining to the tabling of the federal budget.
We cannot but acknowledge that the purpose of this last budget, before the major electoral rendez-vous for this fall, was to satisfy many members of society, and more specifically, the middle class. With regard to announcements to make Canadian businesses more competitive, the firm would like to commend the following measures in particular: the measure eliminating the taxable income threshold so that private corporations can benefit from increased research and development tax credits and the one providing accelerated capital cost allowance for zero-emission vehicles.
Corporate tax: Stronger tax measures should have been included
While this budget does include measures that are favourable for businesses, the firm would have liked to see more forceful measures for stimulating their growth. President and CEO, Emilio B. Imbriglio, said: “In a context where our economic drivers have to deal with a highly competitive business environment and where the labour shortage affects us all, it would have been especially appropriate to significantly reduce corporate tax, or even eliminate it on a portion of their revenues, as we have been recommending for several years now. Moreover, the tax advantage previously enjoyed by Canadian businesses vis-à-vis the United States is long gone; this could seriously undermine Canada’s economic development.”
Innovation through tax credits: Foreseeable, recurring sources of revenue
While innovation remains weak across the country, as reported by the Fraser Institute in January 2019, and the 4.0 transformation to which several businesses had committed requires technological investments, the firm remains confident that credits are the best financing tool suited for this purpose. Tax Partner Pascal Perreault added: “This is why we believe that the principal innovation program in the country, that is, the scientific research and experimental development (SR&ED) tax credit, should have been further increased. Similarly, introducing a tax credit for innovation would enable SMEs that do not conduct research and development to increase their investments in technologies and foster their growth.”
Business succession: Awaiting adjustments to promote family business takeovers
Entrepreneurial succession is also a major challenge for ensuring the longevity of Canadian businesses, particularly family-owned businesses. Tax Partner Sylvain Gilbert stated: “The existence of tax unfairness in the Income Tax Act (ITA 84.1), pertaining to intergenerational business transfers, continues to dissuade Canadian entrepreneur transferors from investing in their business, especially if they sell it to a company held by a family member, due to the capital gains taxation, which can reach close to $870,000. The Quebec government has already made adjustments to render business transfers fairer tax-wise. While we applauded all exchanges with players in the field to develop new proposals that would better consider intergenerational business transfers for tax purposes, it’s now up to the federal government to take action. These tax measures must have a lasting, significant impact everywhere in Canada.”
Canada taxation is obsolete: A major review is needed!
Canadian taxation has not undergone an in-depth review since 1971. Tax Partner Luc Lacombe specified: “Family tax is no longer adapted to today’s family situations, as demonstrated in a recent study we collaborated on with the ESG-UQAM.”
Given that the tax burden remains quite heavy for businesses, Canada lost the corporate tax advantage it had been enjoying ever since the United States and other countries reduced their corporate tax rates and enhanced their tax competitiveness, and that a low corporate tax rate helps attract new investments and create new jobs, Raymond Chabot Grant Thornton reiterates to the federal government the need to review the Canadian tax system.
Urging the federal government to establish a plan to restore budget balance in Canada, Imbriglio added: “For the benefit of all taxpayers, the time has come to quickly announce a tax system review process led by independent experts. This review would lead to a major revamping of the tax system that aligns with the principles of equity, simplicity, competitiveness and efficiency. Taxation must evolve to better suit the realities of today’s organizations. The Budget should have contained targets, especially given increasing interest rates; this would have sent a positive signal to financial donors and rating agencies and make planning the budget easier for the government.”
Consult the pre-budget recommendations submitted to the Canada and Quebec Finance Ministers by Raymond Chabot Grant Thornton.
About Raymond Chabot Grant Thornton
Founded in 1948, Raymond Chabot Grant Thornton has become a Canadian leader in the areas of assurance, tax, advisory services, and business recovery and reorganization, with more than 2,500 professionals, including approximately 200 partners. Together, Raymond Chabot Grant Thornton and Grant Thornton LLP, another Canadian member firm of Grant Thornton International Ltd, comprise more than 4,400 professionals and close to 170 offices across Canada to help Canadian organizations achieve their full growth potential, both locally and globally. Grant Thornton International Ltd provides clients with the expertise of member and correspondent firms with more than 50,000 professionals across more than 135 countries.
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