“Our current tax system favours the transfer of a business to a third party over family members. Changes are needed.” – Jean Robillard, President and Chief Executive Officer
Montréal, February 3, 2011 – Taking advantage of the consultations related to Canada and Quebec pre-budgets and the development of the Quebec entrepreneurship strategy (Stratégie québécoise de l’entrepreneuriat), Raymond Chabot Grant Thornton is releasing a report entitled Business Transfers: Problems and Suggested Solutions. The report, which was sent to the Quebec and federal Ministers of Finance, raises a significant tax concern regarding business transfers and proposes innovative solutions that would support family succession.
Business succession: vital to our economic success
Jean Robillard, President and CEO, stated, “If there is one necessary condition to Quebec and Canada’s economic success, it would be the competitiveness of our businesses. To support and encourage this competitiveness, we must ensure the prosperity of our business successors. This has, unfortunately, not been the case, because of tax provisions that do not favour business transfers to family members.”
In a context where the entrepreneurial business rate has been decreasing for the past 20 years across Canada, and where entrepreneurial businesses in Quebec will suffer a major 13.9% decrease by 2018, Raymond Chabot Grant Thornton is calling upon the government to act more decisively in supporting entrepreneurship. “If we consider Quebec government forecasts that the number of Quebec business owners will plummet by 25,200 in the next 10 years (20,200 of which between 2013 and 2018)¹ , there is cause for concern,” says Jean Gauthier, Tax Partner.
Section 84.1 of the Income Tax Act of Canada Hinders Business Transfers
One of the important ways to stimulate entrepreneurship would be to amend Canada Income Tax Act Section 84.1. According to Jean Gauthier, “This Section of federal legislation and its Quebec equivalent consider capital gains as a deemed dividend when an individual disposes of the shares of a company resident in Canada, for a cash consideration, to another company that is not dealt with at arm’s length and when the company whose shares were sold is connected to the buyer after the transaction. This tax rule prevents the individual from benefiting from the capital gains deduction.”
Ten suggested solutions for remedying this tax problem
Since access to the capital gains deduction is a key element of a business transfer, Academic Partner/HEC Montreal Tax Professor and main author of the report, Suzanne Landry, suggests 10 solutions for counteracting the tax disadvantage that affects family business transactions. “More specifically, the suggested solutions aim to correct the inadequacy between the reality of the business world and the current tax system, by proposing changes to tax laws that would encourage intergenerational business transfers that meet a criterion of economic reality,” stated Suzanne Landry.
Dedicated to the economic development of Quebec and Canada, and as an active and committed player in the business community, Raymond Chabot Grant Thornton considers these tax changes essential to ensure and sustain the livelihood of Quebec and Canadian businesses. “At the dawn of a Quebec entrepreneurship strategy, changes to our tax legislation are indispensable to ensure the growth and competitiveness of our local businesses,” concludes Jean Robillard.
To consult the report, go to www.rcgt.com/business-transfers
About Raymond Chabot Grant Thornton
Founded in 1948, Raymond Chabot Grant Thornton is a leader in the fields of assurance, taxation, consulting and recovery and reorganization services. The Firm owes its success to over 2,000 employees, including more than 225 Partners in over 90 offices in Quebec, Eastern Ontario and New Brunswick. The scope of its network makes it a leader in its business segment. For the past 30 years, Raymond Chabot Grant Thornton has been a member of Grant Thornton International Ltd providing its clients with the expertise of the member and correspondent firms in more than 100 countries.
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¹ Ministère du Développement économique, de l’Innovation et de l’Exportation, “Le renouvellement de l’entrepreneuriat au Québec : Un regard sur 2013 et 2018”, p. 5.
For more information:
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Raymond Chabot Grant Thornton
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