Show Transcript
While no changes to corporate or personal income tax rates were announced in Quebec’s budget this year, Suzanne Tremblay, Region Head, Quebec and Atlantic, TD Wealth and Kevin Quach, Business Succession Advisor, TD Wealth, review the key takeaways and discuss the importance of both businesses and individuals proactively planning for potential future tax increases.
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Suzanne Tremblay:
Kevin, good morning!
Kevin Quach:
Good morning, Suzanne!
Suzanne Tremblay:
Hi, Kevin. I’d like to go back to last week’s points. Obviously, there has been a lot of talk about the budget and a lot of information about the new measures in last week’s budget. This morning, I would like to take a moment to go over the highlights and also discuss tax planning and financial planning related to those aspects. And to start, I’d like to talk about the tax measures that affect individuals in particular. Are you able to present– share with us the key points, in your opinion, from last week’s budget?
Kevin Quach:
Yes, of course, Suzanne. So not much change, I would say, as far as individuals are concerned. This year’s budget didn’t announce any changes with respect to the personal income tax rate. In Quebec, it’s still the highest marginal rate of 25.75%.
In terms of personal tax credits, there are some positive changes for people with disabilities. For families, there is a change in the family allowance. The changes that were made concern the supplements for handicapped children, which will give these families more flexibility to claim the tax credit. For seniors, starting on January 1, 2025, seniors with a disability will be able to receive their full retirement pension starting at age 65, which was not previously the case, because there was a reduction in the pension amount for those who were already claiming a disability pension.
Suzanne Tremblay:
Just on that last measure, Kevin, with respect to seniors with disabilities, we know that this measure has been really well received. Could you tell us about a financial or tax planning situation that we can address in relation to that new measure?
Kevin Quach:
Yes, of course. So, in practice, we often see that financial planning for people with disabilities is not necessarily easy because there are a number of measures, both federal and provincial. So, for example, there is the Registered Disability Savings Plan, the RDSP, which provides tax-deferred growth for contributions up to a maximum of $200,000, and which also allows federal grants and bonds of up to $90,000, which is quite significant.
Otherwise, from an estate planning perspective, the Henson Trust strategy is often used, which allows disabled heirs to receive both an inheritance and government benefits. So for those who find themselves in those situations, I would recommend talking to a tax advisor to sort out the complexities.
Suzanne Tremblay:
Thank you, that’s very interesting Kevin. In terms of businesses, a term we heard a lot about last week was ‘optimization.’ The government talked about optimization for the purpose of increasing revenues and reducing expenses, and that’s in relation to certain credits. Can you share with us the high-level measures that would really affect businesses that were announced last week?
Kevin Quach:
In this year’s budget, where businesses are concerned, there are also no changes to the corporate income tax rate. So in Quebec, the tax rate for small businesses remains at 3.2%, and at 11.5% in other cases. As you mentioned, Suzanne, the biggest changes, I would say this year concern the tax credit for businesses.
First, with respect to the film and television industry, there is good news: the government is increasing the tax credit to encourage activities in that sector. On the other hand, there is a tightening in certain industries, with one example being the tax credit for the development of e-business, the TCDE. So the budget is bringing about changes to really refocus assistance to these businesses, but which specifically offers jobs with higher value added.
So the eligibility criteria will be targeting higher salaries. Also with respect to labour shortages, the minister announced the abolition of the tax credit to foster the retention of experienced workers. In the past, there was assistance for hiring seniors, more specifically individuals aged 60 and over. So what we see here is that the government is eliminating certain tax credits to reallocate resources to credits that really have an impact on Quebec’s economic growth.
So it’s important for business owners to carefully review the programs that are recurrently available, and even in the coming years, with their accountant before starting up a new project.
Suzanne Tremblay:
Thank you, Kevin. I find that interesting, especially that topic. Obviously related to this now, I would like to take advantage of your expertise to see things from a planning perspective. One of the highlights of last week is that we learned that budget balancing would be deferred by a few years. We’re talking about five years. In your opinion, what would be the planning elements that we could– what discussions could be initiated regarding, for instance, tax rates? We heard that there would be no austerity measures. This was mentioned, but we can’t help but think that there may be rate increases in the next few years. In a context of rising rates, what tax strategies could individuals and businesses use?
Kevin Quach:
If I put on my accountant’s hat, it’s clear that when we observe budgets with precautionary deficits, there is always the possibility of an increase in tax rates with a view to balancing the budget. So the important thing, I would say, is really to review the financial and tax planning strategies. So reviews of financial plans in anticipation of such an increase.
For younger people, we’re talking about budgeting, savings management. For those approaching retirement, it’s really about reviewing the impact on their retirement plan, as well as the disbursement plan for their investments. From a tax planning perspective, it’s really about getting the most out of your income by maximizing tax-efficient plans. I’m referring to making annual contributions to the TFSA account, which this year has a contribution limit of $95,000. There is also the RRSP – so growing the RRSP, growing the RRSP tax-free for as long as possible, when you have income from other sources.
And lastly, for those who have a spouse with a lower income, he or she can possibly consider the spousal RRSP to split income and ultimately reduce the household’s combined income.
Suzanne Tremblay:
And then there’s one aspect that comes up often. We know that the government will have to find solutions to increase revenues and reduce expenditures. They said that they were going to sit down at the table to find and work on various programs. We often hear about the capital gains inclusion rate, which comes up regularly. In that regard, if there were to be any changes in the future, can you tell us about some strategies that could be discussed in connection with the capital gains inclusion rate?
Kevin Quach:
Yes, of course. This is a rumour that has been going around for a few years, because we’ve already seen this in the past, that the capital gains inclusion rate, as it currently stands at 50%, has already been at 66 and 2/3%, and even at 75% at one time. So I would say that for those who have assets with significant unrealized capital gains, such as investments, they may consider the appropriate time to rebalance their portfolio and to crystallize certain capital gains. This will naturally cause an income tax prepayment.
But you obviously need to make sure that the rebalancing is also justified from an investment point of view, and not only from a tax point of view. Otherwise, other possible strategies that we’ll be looking at with our clients before the next budget when we believe there could be an increase in the capital gains inclusion rate are the transfer of securities to a spouse, or even a transfer to a holding company. Because the Income Tax Act provides for specific elections to give taxpayers flexibility. Therefore, the option of triggering capital gains or not within a certain period of time. So these are strategies that are a bit more complex, but that require good planning before proceeding.
Finally, I think it’s about capital gains for business owners who want to sell their business in the near future. Remember that the income tax that will have to be paid when a business is sold may be the biggest expense they will have to pay in their lifetime. So you can imagine that a potential increase in the capital gains inclusion rate could have a very significant impact on business owners.
So I’d like to mention some questions that should be asked, Suzanne, such as, does your current corporate structure allow you to take advantage of and even multiply the capital gains exemption? Which in 2024 is over $1 million. If not, has setting up a family trust ever been considered? Can that be useful in your situation? If the trust already exists, has it been revised or is it nearing its 21st anniversary? And there’s also the IPP strategy, which is the Individual Pension Plan. Has that strategy been considered? Because it’s a strategy that can also facilitate the sale of the business in some cases.
So I’ll end my point here with what I often say to our clients. It’s never too early to start preparing for the sale of your business. I would even say that in some cases, it would take at least two years to be able to put in place possible tax strategies to reduce the tax bill at the time of the sale. So my recommendation to entrepreneurs is really to take the time to talk to your tax advisor to guide you through this process.
Suzanne Tremblay:
So on that last point, Kevin, we know how much of a trend there really is in Quebec, interest in selling a business. In Quebec alone, about 60% of business owners intend to transfer or sell their businesses in the next five to 10 years, which is huge. So this will certainly be covered as a whole topic that I’d like to discuss with you again. For this morning, I’d like say thank you, Kevin, thank you for your insight. Thanks for sharing your expertise and for clearly bringing out the highlights of the last budget and points that we can discuss with our advisor. I’d also like to mention with respect to TD Wealth Management that all the advisory teams are able to assist you for these planning discussions. So thank you very much for the interview this morning and have a good day.
Kevin Quach:
It was my pleasure. Thank you.
Kevin, good morning!
Kevin Quach:
Good morning, Suzanne!
Suzanne Tremblay:
Hi, Kevin. I’d like to go back to last week’s points. Obviously, there has been a lot of talk about the budget and a lot of information about the new measures in last week’s budget. This morning, I would like to take a moment to go over the highlights and also discuss tax planning and financial planning related to those aspects. And to start, I’d like to talk about the tax measures that affect individuals in particular. Are you able to present– share with us the key points, in your opinion, from last week’s budget?
Kevin Quach:
Yes, of course, Suzanne. So not much change, I would say, as far as individuals are concerned. This year’s budget didn’t announce any changes with respect to the personal income tax rate. In Quebec, it’s still the highest marginal rate of 25.75%.
In terms of personal tax credits, there are some positive changes for people with disabilities. For families, there is a change in the family allowance. The changes that were made concern the supplements for handicapped children, which will give these families more flexibility to claim the tax credit. For seniors, starting on January 1, 2025, seniors with a disability will be able to receive their full retirement pension starting at age 65, which was not previously the case, because there was a reduction in the pension amount for those who were already claiming a disability pension.
Suzanne Tremblay:
Just on that last measure, Kevin, with respect to seniors with disabilities, we know that this measure has been really well received. Could you tell us about a financial or tax planning situation that we can address in relation to that new measure?
Kevin Quach:
Yes, of course. So, in practice, we often see that financial planning for people with disabilities is not necessarily easy because there are a number of measures, both federal and provincial. So, for example, there is the Registered Disability Savings Plan, the RDSP, which provides tax-deferred growth for contributions up to a maximum of $200,000, and which also allows federal grants and bonds of up to $90,000, which is quite significant.
Otherwise, from an estate planning perspective, the Henson Trust strategy is often used, which allows disabled heirs to receive both an inheritance and government benefits. So for those who find themselves in those situations, I would recommend talking to a tax advisor to sort out the complexities.
Suzanne Tremblay:
Thank you, that’s very interesting Kevin. In terms of businesses, a term we heard a lot about last week was ‘optimization.’ The government talked about optimization for the purpose of increasing revenues and reducing expenses, and that’s in relation to certain credits. Can you share with us the high-level measures that would really affect businesses that were announced last week?
Kevin Quach:
In this year’s budget, where businesses are concerned, there are also no changes to the corporate income tax rate. So in Quebec, the tax rate for small businesses remains at 3.2%, and at 11.5% in other cases. As you mentioned, Suzanne, the biggest changes, I would say this year concern the tax credit for businesses.
First, with respect to the film and television industry, there is good news: the government is increasing the tax credit to encourage activities in that sector. On the other hand, there is a tightening in certain industries, with one example being the tax credit for the development of e-business, the TCDE. So the budget is bringing about changes to really refocus assistance to these businesses, but which specifically offers jobs with higher value added.
So the eligibility criteria will be targeting higher salaries. Also with respect to labour shortages, the minister announced the abolition of the tax credit to foster the retention of experienced workers. In the past, there was assistance for hiring seniors, more specifically individuals aged 60 and over. So what we see here is that the government is eliminating certain tax credits to reallocate resources to credits that really have an impact on Quebec’s economic growth.
So it’s important for business owners to carefully review the programs that are recurrently available, and even in the coming years, with their accountant before starting up a new project.
Suzanne Tremblay:
Thank you, Kevin. I find that interesting, especially that topic. Obviously related to this now, I would like to take advantage of your expertise to see things from a planning perspective. One of the highlights of last week is that we learned that budget balancing would be deferred by a few years. We’re talking about five years. In your opinion, what would be the planning elements that we could– what discussions could be initiated regarding, for instance, tax rates? We heard that there would be no austerity measures. This was mentioned, but we can’t help but think that there may be rate increases in the next few years. In a context of rising rates, what tax strategies could individuals and businesses use?
Kevin Quach:
If I put on my accountant’s hat, it’s clear that when we observe budgets with precautionary deficits, there is always the possibility of an increase in tax rates with a view to balancing the budget. So the important thing, I would say, is really to review the financial and tax planning strategies. So reviews of financial plans in anticipation of such an increase.
For younger people, we’re talking about budgeting, savings management. For those approaching retirement, it’s really about reviewing the impact on their retirement plan, as well as the disbursement plan for their investments. From a tax planning perspective, it’s really about getting the most out of your income by maximizing tax-efficient plans. I’m referring to making annual contributions to the TFSA account, which this year has a contribution limit of $95,000. There is also the RRSP – so growing the RRSP, growing the RRSP tax-free for as long as possible, when you have income from other sources.
And lastly, for those who have a spouse with a lower income, he or she can possibly consider the spousal RRSP to split income and ultimately reduce the household’s combined income.
Suzanne Tremblay:
And then there’s one aspect that comes up often. We know that the government will have to find solutions to increase revenues and reduce expenditures. They said that they were going to sit down at the table to find and work on various programs. We often hear about the capital gains inclusion rate, which comes up regularly. In that regard, if there were to be any changes in the future, can you tell us about some strategies that could be discussed in connection with the capital gains inclusion rate?
Kevin Quach:
Yes, of course. This is a rumour that has been going around for a few years, because we’ve already seen this in the past, that the capital gains inclusion rate, as it currently stands at 50%, has already been at 66 and 2/3%, and even at 75% at one time. So I would say that for those who have assets with significant unrealized capital gains, such as investments, they may consider the appropriate time to rebalance their portfolio and to crystallize certain capital gains. This will naturally cause an income tax prepayment.
But you obviously need to make sure that the rebalancing is also justified from an investment point of view, and not only from a tax point of view. Otherwise, other possible strategies that we’ll be looking at with our clients before the next budget when we believe there could be an increase in the capital gains inclusion rate are the transfer of securities to a spouse, or even a transfer to a holding company. Because the Income Tax Act provides for specific elections to give taxpayers flexibility. Therefore, the option of triggering capital gains or not within a certain period of time. So these are strategies that are a bit more complex, but that require good planning before proceeding.
Finally, I think it’s about capital gains for business owners who want to sell their business in the near future. Remember that the income tax that will have to be paid when a business is sold may be the biggest expense they will have to pay in their lifetime. So you can imagine that a potential increase in the capital gains inclusion rate could have a very significant impact on business owners.
So I’d like to mention some questions that should be asked, Suzanne, such as, does your current corporate structure allow you to take advantage of and even multiply the capital gains exemption? Which in 2024 is over $1 million. If not, has setting up a family trust ever been considered? Can that be useful in your situation? If the trust already exists, has it been revised or is it nearing its 21st anniversary? And there’s also the IPP strategy, which is the Individual Pension Plan. Has that strategy been considered? Because it’s a strategy that can also facilitate the sale of the business in some cases.
So I’ll end my point here with what I often say to our clients. It’s never too early to start preparing for the sale of your business. I would even say that in some cases, it would take at least two years to be able to put in place possible tax strategies to reduce the tax bill at the time of the sale. So my recommendation to entrepreneurs is really to take the time to talk to your tax advisor to guide you through this process.
Suzanne Tremblay:
So on that last point, Kevin, we know how much of a trend there really is in Quebec, interest in selling a business. In Quebec alone, about 60% of business owners intend to transfer or sell their businesses in the next five to 10 years, which is huge. So this will certainly be covered as a whole topic that I’d like to discuss with you again. For this morning, I’d like say thank you, Kevin, thank you for your insight. Thanks for sharing your expertise and for clearly bringing out the highlights of the last budget and points that we can discuss with our advisor. I’d also like to mention with respect to TD Wealth Management that all the advisory teams are able to assist you for these planning discussions. So thank you very much for the interview this morning and have a good day.
Kevin Quach:
It was my pleasure. Thank you.
