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  • COVID-19: Support for Agriculture and Agri-Food Businesses in Quebec and Canada

    It goes without saying that the economic upheavals caused by the COVID-19 pandemic are posing countless challenges for all companies, whether or not they are pursuing their activities within the limits imposed by the governments of Canada and Quebec. Food producers such as agricultural and food processing businesses, considered by the Quebec government to be essential services, are not exempt from this harsh reality. In this context, different levels of government and certain key economic actors have taken critical measures to support and protect businesses in the agriculture and agri-food industry, which are vital to both the health of individuals and that of the Canadian and Quebec economies. This bulletin presents the various support measures specific to agri-food industry businesses, which may also be eligible for general tax and economic support measures announced in response to COVID-19, including the Canada Emergency Wage Subsidy (CEWS). Canadian measures Recruitment support Many food producers depend on the additional input of foreign labour during the summer months. To offset the impact of the mandatory 14-day isolation period for anyone arriving from abroad, the Canadian government is providing financial assistance of $1,500 to such producers for each temporary foreign agricultural worker arriving in Canada to work. This financial assistance is conditional on compliance with the mandatory isolation period or other public health guidelines. Financial support The Government of Canada has also increased Farm Credit Canada’s (FCC) capital base by $5 billion in order to increase its lending capacity for agribusinesses and food producers and processors. For existing borrowers, FCC offers: Deferral of principal and interest payments for up to 6 months or deferral of principal payments for up to 12 months; and Access to an additional secured line of credit up to a maximum of $500,000 (for Quebec borrowers only). FCC offers term loans of up to $2.5 million,with no fees, to any Canadian agriculture and agri-food business whose working capital or production is impacted by COVID-19. Borrowers have the option of paying interest only for 18 months and benefit from a 10-year amortization period. The Government of Canada additionally announced support measures for farm producers, agri-food businesses and the food supply chain, which consist of the following: A sum of $77.5 million to help food processors purchase protective equipment and adapt work areas; A $125 million injection into the AgriRecovery program to cover additional costs to meat producers; A budget of $50 million to buy back certain surpluses, including potatoes and poultry; An increase of $200 million in the Canadian Dairy Commission’s borrowing limit to support temporary storage costs for butter and cheese; Financial assistance of $62.5 million for the fish and seafood processing industry; and Income support for fishers who are not eligible for the Canada Emergency Wage Subsidy, in the form of benefits and subsidies. The Canada Emergency Wage Subsidy On May 15, 2020, the Government of Canada announced its intention to amend the legislation on the CEWS to include measures to increase support for employers that hire seasonal employees. These new provisions, once they are passed, will give employers that are eligible for the CEWS two options for the calculation of their eligible employees’ average “baseline remuneration”: (1) the period from January 1 to March 15, 2020, or (2) the period from March 1 to May 31, 2019. In both cases, any period lasting seven days or more without remuneration will be excluded from the calculation. To be eligible, the employees must not be residents of Canada. Quebec measures The reality of COVID-19 is demonstrating that the success of the agriculture and agri-food industry is one of the Government of Quebec’s top priorities, as it is for the population in general. Recruitment support On April 17, 2020, the Government of Quebec announced that it will pay a premium of $100 per week to anyone taking on work for farmers between April 15 and October 31, 2020. As of April 22, 2020, close to 2,300 Quebecers had applied for such positions, the government’s goal being to encourage 8,500 people to get involved. Financial support La Financière agricole du Québec (FAQ), a government organization serving the agricultural and agri-food industry, has also implemented exceptional measures: Loans of up to $50,000 to support farm producers experiencing liquidity problems related to COVID-19; A six-month moratorium on loan repayments; Interim payments increased to 75% under the AgriStability program to ensure that program benefits are quickly available; Notices of assessment for the Farm Income Stabilization Insurance Program deferred to July 1, 2020; Deadline to enrol in the Crop Insurance Program extended from April 30 to May 21, 2020. Deadline to apply for the Agristability Program extended from April 30 to July 3, 2020. Notices of assessment for the Crop Insurance Program deferred from June 1 to July 1, 2020;  Investment grant payments under many FAQ programs moved up from June1 to May 1, 2020. Finally, the investment company Fondaction, whose mission is to practice socially responsible development, has undertaken to allocate $40 million to Quebec SMEs in the agricultural and agri-food industry over the next year. In addition, Fondaction has made its financing offer more flexible in order to provide support to industry businesses that are solid and growing, provided that they were profitable before COVID-19. Such businesses can apply for assistance from Fondaction to finance any project of $500,000 or more requiring development capital.   The Lavery team is committed to supporting your agricultural and agri-food business. We are available to answer all your questions regarding the announced measures, how they affect your business and any aspect relating thereto. The information and comments contained herein do not constitute legal advice. They are intended solely to enable readers, who assume full responsibility, to use them for their own purposes. The information and comments contained in this document are limited to measures in Quebec or Canada announced or made public on or before June 4, 2020.

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  • Bill C-14 has become law: Are you eligible for the Canada Emergency Wage Subsidy?

    On March 30, 2020, the Government of Canada announced that it would grant the Canada Emergency Wage Subsidy (the “CEWS”) to qualifying entities, no matter their number of employees or their size. Bill C-14 bringing into effect the CEWS, received royal assent on April 11, 2020.  The Government of Canada will subsidize 75% of the first $58,700 of each employee’s wages, for a maximum amount of $847 per week. This measure is retroactive to March 15, 2020. For now, the CEWS covers a 12-week period from March 15, 2020, to June 6, 2020, inclusive. The Canada Emergency Wage Subsidy does not abolish the Temporary Wage Subsidy for Employers, but entities that receive it for a given period will see the CEWS reduced. For more information on the Temporary Wage Subsidy for Employers, click here. Qualifying entities Pursuant to subsection 125.7(1) of the Income Tax Act1 (the “ITA”), to qualify for the CEWS, an entity must first be an “eligible entity.” Eligible entities are the following: Taxable corporations; Individuals; Registered charities (other than a public institution); Partnerships whose members are eligible entities; Agricultural organizations, boards of trade or chambers of commerce2; Non-profit corporations for scientific research and experimental development3; Labour organizations4; and Non-profit organizations5. Subsidies of foreign corporations are also eligible for the CEWS under the same conditions, provided they are incorporated under the laws of Canada. Excluded entities Public institutions6, such as municipalities and local administrations, crown-controlled corporations, public universities, colleges, schools and hospitals, are not eligible for the CEWS. As such, a partnership of which a member is an excluded entity, such as a crown-controlled corporation, would not be eligible for the Canada Emergency Wage Subsidy. Eligibility criteria To qualify for the CEWS, eligible entities will have until October 2020 to file an application for the qualifying periods. Filing will take place via a specific application process. Additionally, a person who has the principal responsibility for the eligible entity’s finances will have to attest that the Canada Emergency Wage Subsidy application is complete and accurate in all material respects. In order to qualify for the CEWS, an eligible entity should also have had a business number before March 15, 2020, for source deductions7 purposes. An eligible entity will need to demonstrate a drop in revenue of at least 15% for the qualifying period of March 2020 and of 30% for each subsequent qualifying period. Qualifying periods and reference periods for eligibility Eligible entities must use one of two methods to attest to the drop in revenue. Eligible entities must compare a current qualifying period to a past qualifying period via either: A year-to-year method (e.g., March 2020 compared to March 2019); or The average of its revenue earned in January and February 2020. An election will need to be made between these two methods in the entity’s first CEWS application. Eligible entities will have to use the same method for the whole duration of the program. Here is the list of the qualifying periods and the corresponding reference periods as announced on the Canada Revenue Agency’s website8: Claiming period Reference period for eligibility Period 1 March 15 – April 11 (reduction of 15%) March 2020 over: March 2019; or Average of January and February 2020. Period 2 April 12 - May 9 (reduction of 30%) April 2020 over: April 2019; or Average of January and February 2020. Period 3 May 10 – June 6 (reduction of 30%) May 2020 over: May 2019; or Average of January and February 2020.   The law provides that additional qualifying (and reference) periods could be added via regulation until September 30, 2020. Accounting method The eligible entity’s normal accounting method should be used to determine qualifying revenue. Entities can calculate their revenue according to either the accrual method or cash method but not a combination of both. Entities must choose an accounting method when filing their first CEWS application and will have to use the same method for the whole duration of the program. The legislation defines qualifying revenue, for the purposes of the comparison between the prior reference period and the current reference period, as “the inflow of cash, receivables or other consideration arising in the course of the ordinary activities of the eligible entity — generally from the sale of goods, the rendering of services and the use by others of resources of the eligible entity — in Canada in the particular period”9. Revenue must be gained from business conducted in Canada and arise from arm’s length sources. Extraordinary items and sums obtained or derived from a non-arm’s length person or partnership are excluded from the computation of revenue. Non-resident entities are not eligible for the CEWS unless they are taxable in Canada. Revenue from sales or transfers between non-arm’s length persons are excluded. An exception to this principle may apply to certain holding corporations. The amount of the Canada Emergency Wage Subsidy received for a qualifying period is not included in the calculation of eligible revenue for the subsequent qualifying period, of course. However, amounts received pursuant to the CEWS will reduce other incentives under tax legislation, like the SR&ED tax incentive program. Registered charities and non-profit organizations For registered charities, non-profit organizations, labour organizations, non-profit organizations for scientific research and experimental development, agricultural organizations, board of trades and chambers of commerce, the computation of revenue must include amounts received during its normal activities, which includes gifts and membership fees. These entities will be authorized to choose whether or not to include funds received from government. Once chosen, an accounting method must be applied for the whole duration of the program. Computation of qualifying revenue The calculation of qualifying revenue should normally be done entity by entity. Consolidated financial statements However, for an entity that is a part of a group of eligible entities that normally prepare consolidated financial statements, each member of this group may determine its qualifying revenue separately if it normally does so. Also, each entity of an affiliated group can make an election to establish its qualifying revenue on an individual basis. For such an election to be valid, every entity of the affiliated group must elect to establish its revenue on an individual basis. Joint ventures The ITA allows for a flow-through mechanism for participants of a joint venture qualifying as an eligible entity even if this joint venture is otherwise considered distinct from its members: If all of the interests in an eligible entity are owned by participants in a joint venture and all or substantially all (meaning 90% or more) of the qualifying revenue of the eligible entity for a qualifying period is in respect of the joint venture, then the eligible entity may use the qualifying revenues of the joint venture. Holding companies A joint election may also be filed in cases where all or substantially all (meaning 90% or more) of an eligible entity’s revenue arises from one or several non-arm’s length persons or partnerships. This mechanism is mainly aimed at holding companies providing services to other entities in a related group and whose revenue should otherwise be excluded pursuant to the “non-arm’s length source” criterion. A formula is provided for in the ITA, containing several presumptions in order to consider transactions with Canadian and foreign entities. Deeming provision for subsequent reference period Qualifying entities must file a new application for each qualifying period. The Canada Emergency Wage Subsidy will be paid monthly by cheque or direct deposit. A deeming rule is provided for in the ITA. When an eligible entity meets the qualifying revenue criteria for a qualifying period, a provision found in subsection 127(9) of the ITA deems the eligible entity to have met the qualifying revenue criteria for the immediately following qualifying periods. In other words, if for the qualifying period of March 15 to April 11, 2020, the entity has demonstrated and attested to a reduction of 30% of its revenue, the entity will be deemed to satisfy this condition for the next qualifying period of April 12 to May 9, 2020. Eligible employees Pursuant to subsection 127(1) of the ITA, an eligible employee is an individual who has been employed in Canada by an eligible entity during a qualifying period and who has not been without remuneration for a period of fourteen (14) or more consecutive days during this qualifying period. Eligible remuneration Eligible remuneration for the purposes of the CEWS includes wages, salaries and other remuneration10. In addition, professional fees, commissions and other amounts for services provided are eligible11. The following forms of remuneration are excluded: Retirement allowances; Amounts deemed to have been received by the eligible employee as a benefit under or because of a stock-option plan12; Any amount received that can reasonably be expected to be paid or returned, directly or indirectly, in any manner whatever, to the eligible entity, a person or partnership not dealing at arm’s length with the eligible entity, or another person or partnership at the direction of the eligible entity; and Any amount paid in respect of a week in the qualifying period, if, as part of an arrangement involving the eligible employee and the eligible entity, the amount is in excess of the eligible employee’s baseline remuneration, after the qualifying period, the eligible employee is reasonably expected to be paid a lower weekly amount than their baseline remuneration, and one of the main purposes for the arrangement is to increase the amount of the CEWS. As such, any arrangement to improperly benefit from the CEWS will be excluded from eligible remuneration. For the purposes of the Canada Emergency Wage Subsidy, eligible remuneration is computed using the average weekly remuneration paid to an eligible employee between January 1 and March 15, 2020, inclusively (the “baseline remuneration”). An exclusion is provided for any period of seven (7) days during which the eligible employee has not received any remuneration. There is no limit to the total amount of CEWS that an entity might claim. The CEWS applies to the first $58,700 of annual salary paid to each eligible employee, computed employee by employee. Under subsection 125.7(2) of the ITA, the CEWS is equal to the greater of the following amounts: 100% of remuneration paid, up to the lesser of the following amounts: 75% of the average weekly remuneration that the employee received before March 15, 2020; and 75% of weekly remuneration paid, up to $847 per week. Employees not dealing at arm’s length with the eligible entity If an eligible employee is not dealing at arm’s length with the eligible entity and he or she has not received eligible remuneration before March 15, 2020, he or she will not be eligible for the CEWS. Only 75% of the remuneration paid before March 15, 2020 will be eligible. This is aimed at preventing persons not dealing at arm’s length from increasing their salaries after March 15, 2020 to increase the amount of the CEWS they would be eligible to received. Example of a CEWS application Baseline weekly remuneration between January 1 and March 15, 2020 = $60,000 Average remuneration after March 15, 2020 = $60,000 % of remuneration paid % before March 15 Greater of: (A) 100% (B) 75% (C) 75% (A) up to the lesser of (C) and $847 (B) up to $847 Week applied for : 03/13-03/21 $1,153.85 $865.38 $865.38 $847 Week applied for : 03/22-03/28 $1,153.85 $865.38 $865.38 $847 Week applied for : 03/29-04/04 $1,153.85 $865.38 $865.38 $847 Week applied for : 04/05-04/11 $1,153.85 $865.38 $865.38 $847 Total CEWS for the eligible employee $3,388   The CEWS is equal to 73.40 % of remuneration paid. The net cost for the eligible entity is 26.60% (+ payroll contributions except if the employee is on leave without pay). Reduction in wages after March 15 If the baseline remuneration of the eligible employee was $60,000 prior to March 15, 2020 but, by agreement, the salary after March 15, 2020 is reduced to $40,000, the CEWS would then be $769, 23. In this example, the CEWS is equal to 100% of the remuneration paid after March 15, 2020 with a net cost to the eligible entity of $0. % of remuneration paid % before March 15 Greater of: (A) 100% (B) 75% (C) 75% (A) up to the lesser of (C) and $847 (B) up to $847 Week applied for: 03/13-03/21 $769.23 $576.92 $865.38 $769.23 Week applied for: 03/22-03/28 $769.23 $576.92 $865.38 $769.23 Week applied for: 03/29-04/04 $769.23 $576.92 $854.38 $769.23 Week applied for: 04/05-04/11 $769.23 $576.92 $854.38 $769.23 Total CEWS for the eligible employee $3,076,92   New Employee Should the eligible entity hire a new employee for a salary of $40,000 per year, the CEWS received in respect of this employee would be equal to $576.92 (75% of remuneration paid). Payroll contributions reimbursed under certain circumstances Certain employer-paid contributions can be reimbursed. This reimbursement would apply to the entirety of employer-paid contributions in respect of eligible employees, for each week during which these employees are on leave with pay and for which the entity qualifies for the CEWS regarding these employees. These contributions include: Employment Insurance; The Canada Pension Plan; The Québec Pension Plan; and The Québec Parental Insurance Plan. Eligible entities should continue to withhold and remit both employee and employer contributions as usual. They will then be able to claim a reimbursement at the same time as the CEWS. The Government of Canada has announced that entities benefiting from the CEWS will have to demonstrate having “done their best” to pay the remaining 25% of wages not covered by the CEWS to their employees. This criterion will be evaluated with flexibility in order to take into account the financial struggles of businesses. As of now, nothing with respect to this 25% is mentioned in the ITA. The CEWS will be deemed as taxable income for the entities benefiting from the program. Employees benefiting from the CEWS will be taxed at the source. How to apply An online portal will be launched between two (2) to five (5) weeks from now, for eligible entities to file a claim for the CEWS. Qualifying entities will be able to apply for the CEWS through the Canada Revenue Agency's My Business Account portal. The Minister of Finance will be able to communicate the name of any person or partnership that applies for the CEWS. More information should be released shortly. Anti-avoidance and penalties Specific anti-avoidance rules are provided for by the legislation. Also, in case of ineligibility, an employer must reimburse the amounts received. In case of abuse of the program, a penalty of up to 25% of amounts received could be imposed (up to 225% when computing all penalties that could be applied under the ITA), with the possibility of a prison sentence of up to 5 years. Eligible employees and interaction of the CEWS with the Canada Emergency Response Benefit The Government of Canada is considering putting in place a process allowing employees rehired by their employers during the same qualifying period to cancel their application for the Canada Emergency Response Benefit and to reimburse any amounts received pursuant to this program. Lavery’s team is available to answer any question you may have regarding the announced emergency measures as well as any related aspects. The information and commentaries contained in the present document do not constitute a legal opinion. Their sole purpose is to allow readers, who bear all responsibility, to use them for their own ends. The information and commentaries contained in this document are limited to the measures announced or made public by the Government of Québec and the Government of Canada on or before April 13, 2020.   R.S.C. (1985), c. 1 (5th Suppl.) As defined in paragraph 149(1)(e) of the ITA As defined in paragraph 149(1)(j) of the ITA As defined in paragraph 149(1)(k) of the ITA As defined in paragraph 149(1)(l) of the ITA As defined by paragraphs 149(1)(a) to 149(1)(d.6) of the ITA Under section 153 of the ITA Source: https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html [to date as of April 13, 2020] Definition of “Qualifying revenue” in section 125.7 of the ITA Under paragraph 153(1)a) of the ITA Under paragraph 153(1)g) of the ITA Under paragraphs 7(1)(a) to (d.1) of the ITA

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  • COVID-19: Summary of Quebec and Federal Tax Measures and Financial Assistance

    Download your reference page of the financial aids put in place in Quebec and Canada The ongoing COVID-19 pandemic is forcing different levels of government to institute measures to reduce the burden on taxpayers and protect the economy. The following is a summary of the principal measures announced to date:  Measures with respect to tax deadlines in Québec and Canada; Measures relating to businesses; Measures with respect to employees and self-employed individuals; Measures pertaining to judicial and administrative time limits. Measures to ease tax deadlines in Quebec and Canada On March 18 and March 27, 2020, the Minister of Finance of Canada announced the extension of filing deadlines for certain income tax returns and of payment deadlines for certain amounts owing for individuals, trusts and corporations for federal income tax purposes. The Minister of Finance of Québec matched the federal deadline extensions for provincial income tax purposes on the same day. Individuals New deadlines (Quebec and Canada) Income tax return filing June 1, 2020 For individuals conducting unincorporated businesses (and their spouse or partner) the deadline is June 15, 2020. Payment of income taxes For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 QPIP/QPP/HSF/RAMQ contributions For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 (Quebec only) Instalment payments For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020   Trusts (other than specified investment flow-through trusts) New deadlines (Quebec and Canada) Income tax return filing May 1, 2020 Payment of income taxes For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 QPIP/QPP/HSF/RAMQ contributions For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 (Quebec only) Instalment payments For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020   Corporations New deadlines (Quebec and Canada) Income tax return filing New deadline for tax returns normally due before May 31 is June 1, 2020 Payment of income taxes For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 Instalment payments For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 Payment of QST/GST For payments of QST/GST normally due on March 31, April 30 and May 31, the new deadline is June 30, 2020. Source deductions No measure has been announced to date   Partnerships New deadlines (Quebec and Canada) Filing of Partnership Information Return T5013/TP-600-v May 1, 2020   Not-for-profit organizations and registered charities New deadlines (Canada only) Filing of Information Return T3010 December 31, 2020   Person making a payment to a non-resident New deadlines (Canada only) Filing of Statement of Amounts Paid or Credited to Non-Residents of Canada (NR4) May 1, 2020   Deadlines for payments of import and export fees have been extended to June 30, 2020. Deadlines regarding filings and payments of tax on lodging otherwise due before April 30, 2020 are postponed to July 31, 2020. Deferral of tax payments in many Québec municipalities Many Québec municipalities have decided to defer municipal tax payment deadlines in order to reduce the burden on taxpayers. Here are the new deadlines set by some of them: Municipalities New deadline for the next tax payment Montréal July 2, 2020 Lévis Interest on balances owing will be suspended until May 30, 2020 City of Québec Payments due on May 4, July 3 and September 3, 2020 are postponed until August 4, September 3 and November 3, 2020, respectively. Trois-Rivières September 8, 2020 Longueuil Payments due on April 6, June 6 and September 8, 2020 are postponed until May 6, July 6 and September 8, 2020, respectively. Gatineau Payments that were due on March 31 and June 30 are postponed until August 31, 2020 Sherbrooke Payments due on May 4, July 3 and September 3, 2020 are postponed until August 4, October 3 and December 3, 2020, respectively. Laval September 1, 2020 for the 1st and 2nd payments.   Measures concerning businesses In Québec Concerted temporary action program for businesses (PACTE) On March 20, 2020, the Government of Québec announced a temporary program administered by Investissement Québec aiming to facilitate access to credit for businesses in the form of a loan guarantee. Businesses that are already clients of Investissement Québec can communicate directly with their project director or account manager by email or by phone using the online directory. Businesses that are not clients of Investissement Québec and that wish to benefit from such a loan guarantee must first contact their financial institution, which will itself contact an Investissement Québec account manager. Any questions on a specific situation regarding this program should be directed to Investissement Québec’s client centre, reachable at 1 844-474-6367. Caisse de dépôt et placement du Québec’s 4 billions dollars fund The Caisse de dépôt et placement du Québec (CDPQ) announced, on March 30, 2020, the creation of a 4-billion-dollar fund to assist Québec businesses temporarily affected by COVID-19. This financing will take diverse forms, which are not yet specified. In order to qualify for this financing, businesses must: Have been profitable before the beginning of the COVID-19 crisis; Have promising growth perspectives in their sector; Seek a minimum financing of 5 million dollars or more. Businesses that want to apply for this financing may do so by filing an online form. Accelerated treatment and payment of certain tax credits The Government of Québec and Revenu Québec have put in place several administrative measures aiming to supplement businesses’ cash flow. These measures are further described below. Concerted Action to Maintain Employment Program (CAMEP) (New) On April 6, 2020, the Government of Québec announced a new subsidy program of 100 million dollars aimed at helping businesses impacted by COVID-19 pandemic by supporting workforce skills development. The CAMEP is a two-pronged measure: Business Component, which targets businesses by supporting the business’s own activities aiming to improve human resources management and workforce skills. This support will take the form of financing of online or in-person training activities (subject to regulation on physical distancing set by Public Health Authorities), through reimbursement of eligible expenditures. Collective Promoters Component which targets organizations that offer a collective approach to meet the training needs of businesses and the workforce. A Collective Promoter is a group of employers or workers able to create employment-related projects and who can supervise or ensure their implementation, such as sectoral labour committees, training mutual and recognized employers’ associations, legally constituted workers’ associations, etc. Eligibility criteria The following entities will be eligible to CAMEP: Employers; Self-employed workers (whether or not they are incorporated) employing other workers; Workers’ and employers’ associations; Professional groupings; Group of employers; Group of workers; Collective Promoters recognized by the Commission des partenaires du marché du travail for the Collective Promoters Component of CAMEP; Cooperatives; Economic social enterprises; and Not-for-profit organization and community organization. Eligible training activities The following types of training activities offered by an entity listed above will be eligible to CAMEP: Basic employee training; Francization; Digital-skill training; Continuing education on business activities, no matter if they are related or not to the actual position of the trainee; Training encouraged by a professional order; Training essential to the resumption of business activities; Training related to a strategic shift in business activities in the context of economic uncertainties caused by COVID-19 and aiming to maintain or diversify business’ activities; and Re-qualification training for workers. Eligible expenditures The following expenditures, engaged by an entity listed above in the course of an eligible training activity will be eligible to CAMEP: Salaries and wages of workers (excluding social benefits) for a maximum of $25 per hour; Professional fees of consultants or trainer for a maximum of $125 per hour; Indirect fees for trainers (meals, transportation, accommodations, etc.) at real cost; Indirect fees for workers in training (transportation, meals, accommodations, etc.) at real cost; Elaborating, adapting or purchasing of training material, at real cost; Adapting of an in-person training course into an online training course; Registration or subscription fees of an online platform, at real cost; If applicable, fees related to management activities (banking fees, training material) paid by the delegated entity up to 10 % of those fees; Diagnostic of the human resources functions and, if applicable, of other management functions (Business Component only); Consultant fees in human resources management (organizational communication, telecommuting, etc.) (Business Component only); and Coaching and management training (Business only). Eligible expenditures, subject to certain exceptions regarding salaries and wages that will be explained further in this section, will give rise to a reimbursement of: 100 % of eligible expenditures on the first $100,000 or less; 50 % of eligible expenditures between $100,000 and $500,000. Reimbursement of salaries and wages: interaction between CAMEP and other wage-based subsidies granted by the Government of Québec or Canada The reimbursement terms of salaries and wages as eligible expenditures vary depending on the other wage-based subsidies granted by the Government of Québec or Canada that a business receives. Terms announced as of April 6, 2020, are the following: 25 % of total salaries and wages of employees in training (up to a maximum of $25 per hour), if the business receives the Canada Emergency Wage Subsidy of 75 % described below; 90 % of total salaries and wages of employees in training, if the business receives the Temporary Wage Subsidy for Employers of 10 % described below; 100 $ of salaries and wages of employees in training if the business receives no wage-based subsidy from the Government of Québec or Canada. Duration of CAMEP Projects detailing eligible training activities must be submitted to Services Québec. Services Québec will accept new projects until September 30, 2020, or until the $100 million dollars envelope runs out. Eligible training activities are not subject to a minimum or maximum duration. Further details concerning this measure are expected to be announced within the next few days. Small and Medium Businesses Emergency Aid (Québec) (New) This program aims to relieve SMBs experiencing financial difficulties due to the present COVID-19 crisis through loans of up to $50,000.   Eligible Businesses Businesses operating in all sectors, including social economy enterprises, cooperatives, and nonprofit organizations conducting commercial activities are eligible under the following conditions: They are in business in Québec since at least one year; They are temporarily closed, on the brink of closing or showing warning signs of imminent closure; They are in a context of maintaining, consolidating or reviving their activities; They are able to demonstrate a direct link between their financial difficulties and the present COVID-19 crisis. Businesses under the protection of the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) or of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) are excluded from this program.   Eligible Financing Financing granted by this program aims to relieve businesses’ cashflow needs and is determined based on reasonable and documented expenses. Cashflow needs must be caused by either: Impossibility or substantial reduction of the capacity to deliver products (goods or services) or merchandise. Financing will take the form of a loan guarantee of up to $50,000   How to Apply Businesses wishing to benefit from this program must contact their Regional County Municipality (RCM), their municipality’s office or the organization in charge of administering their RCM’s Local Investment Funds. Flexibility towards loans granted by Local Investment Funds (Québec) (New) A 6-month moratorium on reimbursement (both capital and interests) of loans granted by Local Investment Funds. Interests accrued during this period will be capitalized. This measure is in addition to the previously announced moratoriums related to the investment policies of most Local Investment Funds. In Canada Canada Emergency Wage Subsidy (CEWS) (New) The Government of Canada announced, on March 30, that it will grant a temporary wage subsidy, the Canada Emergency Wage Subsidy (the “CEWS”), to eligible employers, no matter their size and number of employees. Bill C-14 adopting the CEWS has been sanctioned on April 11, 2020. The Government of Canada will subsidize the first 75% of pre-crisis wages or salaries of existing employees, to a maximum salary of $58,700, amounting to a maximum amount of $847 per week, per salary. This measure is retroactive to March 15, 2020. As of now, this measure covers a twelve-week period, from March 15, 2020, to June 6, 2020, inclusively. The CEWS does not abolish the Temporary Wage Subsidy described below. An eligible employer who received an amount via the Temporary Wage Subsidy will see the amount of his CEWS reduced accordingly. For more details concerning he CEWS as well as examples of calculation of CEWS amount, read our complete CEWS brief here.   Temporary Wage Subsidy for Employers Announced on March 18, 2020, the Temporary Wage Subsidy for Employers allows eligible employers (in respect to this specific measure, notwithstanding the status, or lack thereof, of eligibility to the CEWS described above), to reduce payments of source deductions of an amount equivalent to 10 % of remuneration paid between March 18 and June 20, 2020, for a maximum amount of $1,375 per eligible employee and a maximum total amount of $25,000 per eligible employer. Eligible employers are: Individuals (excluding trusts); Canadian-controlled private corporations (“CCPCs”) which taxable capital in Canada for the previous taxation ear (including associated corporations) is inferior to $15 million dollars; Registered charities; Not-for-profit organization; and Partnerships the members of which are eligible employers. Notably, this measure is a diminution of source deduction payments and does not incur any injection of cash in the eligible employer’s business: no check or electronic transfer will be paid to an employer in application of this measure. This measure does not allow to reduce payments of contributions to the Canadian Pensions Plan, Employment-Insurance premiums or payments due to Revenu Québec. Eligible employers are allowed to reduce payments of source deduction for the first payment period concerning remuneration paid from March 18 to June 20, 2020. Should the amounts of the subsidy for an eligible employer for the period exceed the amounts of source deduction due for the period, the eligible employer will be allowed to reduce payment of source deductions beyond the end of the period, after June 19, 2020. This measure does not alleviate employers’ obligations to remit income tax deduction (beyond the subsidy amount computed using the method described above), to contribute to the Canadian Pensions Plan and to pay Employment-Insurance premiums. The amount of this subsidy that will be deducted from an eligible employer’s source deduction will be included in the employer’s taxable income for the year. No registration or filing is needed to benefit from this measure. However, employers will have to keep supporting records, which include: the total remuneration paid between March 18, 2020, and June 20, 2020; the amount of federal, provincial and territorial income tax that was deduced from that remuneration; and the number of employees paid in the period. The Government of Canada announced that organizations that are not eligible to the CEWS described above may still be eligible to the Temporary Wage Subsidy for Employers. Amounts deducted from source deductions by virtue of this measure will diminish any amount due to an employer by virtue of the CEWS, thus eliminating duplication of benefits. Canada Emergency Commercial Rent Assistance (CECRA) The Government of Canada has announced its intention to introduce the CECRA in order to provide loans, including forgivable loans, to commercial property owners who in turn will lower or forgo the rent of SMBs for the months of April (retroactive), May and June, 2020. A partnership between the Government of Canada and the provincial governments will be necessary to administer this program, as regulation of owner-tenant relationships is a private law matter. Announcements detailing these measures should followin the coming days. Canada Emergency Business Account – Loan guarantee of $40,000 to SMBs (New) On March 27, 2020, the Government of Canada announced that SMBs and not-for-profit organizations will be able to take out a government-backed loan from private banks up to a maximum of $40,000. These loans will be interest-free for a year. To be eligible, businesses will have to demonstrate that they had a total payroll ranging between $50,000 and $1 million for 2019. The reimbursement of this loan before December 31, 2022, will incur a write-off of 25% of the debt, for a maximum write-off of $10,000. Easing of the cash reserve requirements for financial institutions ($300 billion of additional funds) (Canada) The Office of the Superintendent of Financial Institutions has relaxed the rules concerning the mandatory cash reserves of Canadian financial institutions. This measure will increase the loaning capacity of Canadian large banks up to $300 billion and will facilitate access to credit for borrowers. Co-Lending Program for Small and Medium-sized Enterprises The BDC and certain financial institutions will co-lend to SMBs in order to fund their operational expenses and cash-flow needs. The BDC will loan a maximum amount of $5 million per loan. Eligible financial institutions will be responsible for managing this program and will be the point of contact with clients. New Loan Guarantee for Small and Medium-sized Enterprises EDC will guarantee new operating credit and cash flow term loans that financial institutions extend to SMBs up to $6.25 million. Measures for employees and self-employed individuals In Québec Temporary Aid for Workers Program (PATT) The Government of Québec announced on April 8, 2020 that the PATT program will end as of April 10, 2020, due to the introduction, by the Government of Canada, of the Canada Emergency Response Benefit. Incentive Program to Retain Essential Workers (IPREW) The Government of Québec announced a new financial aid granted to essential workers during the period of the COVID-19 crisis, aimed at compensating differences between worker’s normal salary and the CERB. The IPREW consists of a payment of $100 per week, amounting to $400 per month, for a maximum duration of 16 weeks. The first IPREW payment is scheduled for May 27, 2020. All subsequent payments will take place every two (2) weeks. Workers eligible to IPREW are those who: Are working full or part-time in a sector related to essential services during the period; Earn a gross salary of $550 or less per week; Earn yearly employment revenues of at least $5,000 and at most $28,600 for the year 2020; Are aged of at least 15 years at the moment on which they claim benefits from IPREW; Are residents of Québec on December 31, 2019 and are planning to remain residents of Québec all through the 2020 year; Have not received, for a week on which they claim IPREW, benefits from CERB or PATT. IPREW claims can be filed from May 19, 2020 to November 15, 2020 through the My Account with Revenu Québec. Claimants must be registered to direct deposit with Revenu Québec in order to benefit from IPREW. Accelerated Treatment and Payment of Certain Tax Credits The Government of Québec and Revenu Québec have taken several administrative measures to supplement individuals’ financial situations. These measures are further described below. In Canada Buyback of Government of Canada Bonds The Bank of Canada has announced that it is expanding the scope of its Government of Canada bond buyback program to add liquidity to the market. Mortgage Default Management Tools The Canada Mortgage and Housing Corporation (CMHC) and other mortgage insurers have ways to assist homeowners experiencing financial difficulty. Among these are payment deferral, loan re-amortization, capitalization of outstanding interest arrears and other eligible expenses, and special payment arrangements. Canada Emergency Response Benefit (New) The Canada Emergency Response Benefit (CERB) announced on March 25, 2020, and sanctioned by Bill C-13, replaces the Emergency Care Benefit and the Emergency Support Benefit previously announced. The CERB is a taxable benefit of $2,000 per month for a maximum period of 4 months. The CERB was put in place in order to provide financial aid that is faster than the normal Employment Insurance program would be under the circumstances. It is therefore advised that workers eligible for both the CERB and Employment Insurance first file a CERB claim, even though the CERB is limited to a 4-month duration, because CERB claims will be processed faster than Employment Insurance claims. Bill C-13 provides that workers must meet the following criteria to be eligible for the CERB: Whether employed or self-employed, they have ceased working for reasons related to COVID-19 for at least 14 consecutive days within the four-week period in respect of which they are applying for the payment; and They are not receiving, in respect of the consecutive days on which they have ceased working: subject to the regulations, income from employment or self-employment, benefits, as defined in subsection 2(1) of the Employment Insurance Act, allowances, money or other benefits paid to the worker under a provincial plan because of pregnancy or in respect of the care by the worker of one or more of their newborn children or one or more children placed with them for the purpose of adoption, or any other income that is prescribed by regulation. For CERB purposes, a worker is any person aged 15 or more, who is a resident of Canada and who, for the 2019 calendar year or in the twelve (12) months preceding the date on which the worker files the CERB claim, earned at least $5,000 in income. The income must have come from one or several of the following sources: employment; self-employment; benefits paid under the Employment Insurance Act2; allowances, money or other benefits paid to the person under a provincial plan because of pregnancy or in respect of the care by the person of one or more of their newborn children or one or more children placed with them for the purpose of adoption. On April 15, 2020, the Government of Canada has announced that the CERB eligibility criteria will be broadened in order to: Allow persons to earn up to $1,000 per month during which they receive CERB; Extend CERB to seasonal workers who have exhausted their Employment-Insurance regular benefits and are unable to undertake their regular seasonal work as a result of the COVID-19 outbreak; Extend the CERB to workers who have recently exhausted their Employment-Insurance regular benefits and are unable to find a job or return to work because of COVID-19; Allow artists to receive royalty payments for copyrighted works produced before March 1st, 2020 while collecting CERB. Dividends A taxpayer who receives dividends may be eligible to CERB if the dividends paid are ordinary dividends (in general, ordinary dividends are paid from business revenues on which the Small business deduction applies). How to apply CERB claims are available since April 6, 2020. Payments are planned to start in the ten (10) days following the filing of a claim concerning any period starting and ending between March 15, 2020, and October 2, 2020. To file an application, click here. A single CERB claim must be filed with Service Canada. A reimbursement must be made if you have received CERB twice or if you return to work earlier than scheduled. It is to be noted that certain appeals concerning Employment Insurance and the Canada Pension Plan are suspended. Other measures (Québec and Canada) Many other measures will be put in place, including an increase in the Canada Child Benefit, an increase in the maximum GST credit, the reduction of the minimum withdrawal amount of RRIFs, an extension for reimbursement of student loans (both in Québec and in Canada) as well as several specific credits. Here are some of them: Autorité des Marchés Financiers (AMF): The AMF is granting an additional 45 days for the continuous disclosure filings of reporting issuers that were to be filed before June 1, 2020. For more details, click here. Canada Economic Development for Québec Regions (CEDQR): Starting April 1, CEDQR will defer payments due to CEDQR by its clients for a duration of three (3) months. For more information, click here. Export Development Canada (“EDC”): EDC will facilitate cash flow loans for exporting businesses by offering loan guarantees to their banks on loans of at most $5 million. Also, under certain conditions, EDC will cover losses on expedited goods even if the buyer has not accepted them. The cancellation of the 60-day waiting period for compensation claims was also announced. For more details, click here. Hydro-Québec: Since March 23, Hydro-Québec has suspended the application of management fees on outstanding bills for all clients. For more information, click here. Measures concerning judicial and administrative time limits Amongst the emergency measures announced, the authorities have also put in place measures to ensure the respect of the taxpayers’ rights, both in Québec and in Canada. In Québec Suspension of extinctive prescription in civil matters On March 15, 2020, through Order 2020-4251, the Minister of Justice of Québec and the Chief Justice of Québec suspended extinctive prescription and terms for forfeiture in civil matters until the health emergency declared by the Government of Québec on March 13, 2020, comes to an end. Proceedings in civil matters are also suspended during this period, with the exception of matters deemed urgent, such as injunctions and habeas corpus applications. This measure applies to, but is not limited to, the following: Appeals of assessment before the Court of Québec; Summary appeals before the small claims division of the Court of Québec; Application of review of the Minister’s decision refusing to extend the time limit for filing an objection; Request to extend the deadline to file an appeal or a summary appeal. Extension of various deadlines Several deadlines to exercise a right, provide information, send documents or make an election that would have applied before May 31, have been deferred to June 1, 2020. Failing to meet such a deadline can cause the loss of a right and generate a penalty or interest, depending on the nature of the obligation and the amount of time elapsed since the deadline. The deadline extension will cover, among other things, the following: Filing of an income tax return of a corporation; Election of a choice under legal or regulatory fiscal rules, such as a rollover; Claim of a tax credit; Claim of fuel tax reimbursement; Response to a request of information from Revenu Québec; Mandatory or preemptive disclosure with regard to aggressive tax planning; Claim of Québec Education Savings Incentive. Extension of time to file an objection to a notice of assessment For a notice of assessment subjected to a time limit for filing an objection ending between March 15 and June 29, 2020, the time limit is extended to June 30, 2020. However, notices of objection should still be filed within the required time limit (i.e., 90 days from the issuance of the notice of reassessment) provided for in section 93.1.1. of the Tax Administration Act, when possible. This is a mandatory deadline that cannot be amended. Therefore, unless otherwise indicated, a notice of objection filed after the 90-day period provided for in section 93.1.1. of the Tax Administration Act, should also include an application for an extension of time to file said notice of objection. Accelerated treatment and payment of certain tax credits For businesses: On March 27, 2020, the Government of Québec announced the advance payment of tax credits to businesses in order to inject cash in businesses as quickly as possible. This measure will allow for the advance payment of more than $600 million to businesses. For individuals: Revenu Québec has accelerated processing of income tax returns granting a payment by Revenu Québec. Since February 24, 2020, almost $800 million has been paid in advance to individuals having already filed their income tax return. The 4-month extension of the renewal of the tax credit for Home-Support Services for Seniors as well as the deferral of the renewal of the Shelter Allowance Program to December 1, 2020, are improving upon the socio-fiscal measures already in place in Québec. Suspension of audits and debt collection Revenu Québec has suspended its audit activities, except for situations presenting a risk of fraud. No contact with a taxpayer will be initiated by Revenu Québec unless it is necessary for processing a payment to the taxpayer. Revenu Québec has suspended its debt collection activities and will be flexible in the application of payment agreements regarding a fiscal debt. In Canada Suspension of audits (New) The Canada Revenue Agency has announced that no communications aiming to audit SMBs regarding the GST/HST or income tax will occur.   Also, no request for information concerning an ongoing audit will be sent to taxpayers. Ongoing audits will stop and no new assessments will be made. If you have received a communication from the Canada Revenue Agency containing response dates or deadlines to transmit a document, no action is required from you or your representative for the time being. Objections and appeals (New) Objections regarding the right to a benefit or a tax credit, such as the Investment Tax Credit (SR&ED), have been deemed to be essential services. No delay should affect processing of such objections. Objections concerning any other tax matter regarding individuals or businesses are suspended. On March 28, 2020, the Canada Revenue Agency announced that the deadline for any objection to a notice of assessment for which the deadline to file a notice of objection is after March 28, 2020, is deferred to June 30, 2020. However, notices of objection should still be filed within the required time limit (i.e., 90 days from the issuance of the notice of reassessment) provided for in section 165 of the Income Tax Act, when possible. This is a mandatory time limit that cannot be amended. Therefore, unless otherwise indicated, a notice of objection filed after the 90-day period provided for in section 165 of the Income Tax Act, should also include an application for an extension of the time to file said notice of objection. Suspension of debt collection (New) All debt collection activities on new amounts owing to the Canada Revenue Agency are now suspended. Existing debts that are already the subject of a collection measure will be re-evaluated on a case-by-case basis. Any taxpayer that cannot, before the payment deadline and for circumstances beyond its control, fulfill its obligations towards the Canada Revenue Agency, can file a Request for Taxpayer Relief in order to cancel interest or penalties that would be otherwise applicable. Administrative tax measures Administrative income tax actions required of a taxpayer by the Canada Revenue Agency that are due after March 18, 2020, can be deferred to June 1, 2020. Such actions include filing of an income tax return, elections and requests for information. Payments of source deductions and any related activities are expressly excluded from such deferrals. Suspension of Tax Court of Canada delays Appeals before the Tax Court of Canada are postponed due to the closing of the Tax Court until further notice. Conference calls scheduled between March 16 and May 29, 2020, are cancelled. The Tax Court’s calendar will be reassessed on May 20, 2020. However, notices of appeal should still be filed within the deadline provided for in section 169 of the Income Tax Act, when possible. The period ranging from March 16 to the 60th day after the eventual reopening of the Court and its offices will be excluded from the computation of time under: Tax Court of Canada Rules (General Procedure); all other Rules made under the Tax Court of Canada Act governing the conduct of matters that, pursuant to section 12 of the Tax Court of Canada Act, are under the  Tax Court of Canada’s jurisdiction; or an Order or Direction of the Tax Court of Canada. The Tax Court of Canada will process any applications of extensions of time to file Notices of Appeal filed during the period that the Court is closed and for 60 days thereafter as including an application for an extension of time to appeal brought on the exceptional grounds that the applicant was prevented by the crisis caused by the COVID-19 and the Court closure from filing within the normal statutory deadlines. Appeals to the Minister regarding the Canada Pension Plan and Employment Insurance Taxpayers who wish to file an appeal of the Minister’s decision regarding the Canada Pension Plan or Employment Insurance may do so by filing a request through My Account. As of now, the Canada Pension Plan and Employment Insurance appeals programs are only following up on cases in which benefits are suspended. All other appeals will pick back up when all services are back to normal. Lavery’s team is available to answer any question you may have regarding the announced emergency measures as well as any related aspects. The information and commentaries contained in the present document do not constitute a legal opinion. Their sole purpose is to allow readers, who bear all responsibility, to use them for their own ends. The information and commentaries contained in this document are limited to the measures announced or made public by the Government of Québec and the Government of Canada on or before April 20, 2020.   Normally, to be eligible for the small business deduction, a corporation must be a Canadian-controlled private corporation and its taxable capital (including that of its group of related corporations) must not exceed $15 million. Subsections 22(1), 23(1), 152.04(1) and 152.05(1) of the Employment Insurance Act.

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  • COVID-19: How to adapt your current tax planning?

    The spread of COVID-19 is having a considerable negative effect on the global economy. Several tax planning strategies adapted to the current situation can be considered in order to mitigate the impact. Tax planning for individuals helps to (i) reduce the taxes payable upon death, (ii) encourage intergenerational business transfers, and (iii) maximize the use of the capital gains deduction, through a trust or otherwise. For businesses in the current economic crisis, creativity and strategic vision are needed. In this context, certain tax plans will allow businesses to (i) maximize liquidity, (ii) reduce a corporate group’s taxes payable in the short term, (iii) optimize the use of losses, and (iv) bring about major tax savings in the long term. Here are a few examples of tax plans that are particularly appropriate for the current situation: Employee stock option plans Reviewing strike prices Strategies for using the capital dividend account Strategies for using losses within a corporate group, including: Intragroup management fees Loans between corporations Amalgamation or liquidation of business corporations Deferral of taxes on imports Recovering the GST/QST on bad debts Strategies to increase the fiscal cost of certain corporate assets and shares Estate freeze in order to lower taxes upon death Estate thawing and refreezing Applicable to a previous freeze whose value exceeds the current value Planning with regard to the rule of the average cost of identical properties Income splitting Leaving Canada Dismantling or creating legal entities to facilitate tax planning These plans are particularly effective in a context of economic downturn and a decrease in the fair market value of investments and assets. It is therefore important to act quickly.  Our taxation team is available to answer all of your questions about establishing a tax plan to suit your needs.

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  • Bill 37 and Preventive Disclosure of Tax Planning: Why and How?

    Bill 37, now known as the Act mainly to establish the Centre d’acquisitions gouvernementales and Infrastructures technologiques Québec, SQ 2020 c. 2,  was assented to on February 21, 2020. In particular, this act makes significant changes to the Act respecting contracting by public bodies, CQLR c. C-65.1, and its regulations. Our partners Laurence Bich-Carrière (civil and commercial litigation) and Marie-France Dompierre (tax litigation) have already discussed the impact of these changes in a publication, Bill 37: What changes can be expected for Public Contracts? published on October 29, 2019. New tax measures – Deadline to file a late preventive disclosure From now on, a penalty on a final assessment under the general anti-avoidance rule against a company or a person related to the company in respect of an abusivetax avoidance transaction1  will result in the company being added to the Register of Enterprises Ineligible for Public Contracts (the “REIN”) for a period of five years. The promoter of such a transaction may also be added to the REIN if subject to the same penalty. In order to avoid being added to the REIN, taxpayers who have engaged in tax planning that may be deemed aggressive by the tax authorities normally had until April 21, 2020, to make a late preventive disclosure to the Minister of Revenue2 by filing the form Mandatory or preventive disclosure of tax planning (TP-1079.DI) and a letter3 indicating that it is a late preventive disclosure. However, due to the present crisis caused by the COVID-19 pandemic, Revenu Québec has postponed certain deadline to June 1, 2020, specifically including preventive and mandatory disclosures of aggressive tax planning. The constitutionality of similar measures is currently being debated before Quebec courts.   Sections 1079.13.1 and 1079.13.2 of the Taxation Act, CQLR c. I-3. Section 1079.8.7.1 of the Taxation Act, CQLR c. I-3. Section 44 of the Act mainly to establish the Centre d’acquisitions gouvernementales and Infrastructures technologiques Québec, SQ 2020 c. 2.

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  • The 2020-2021 Quebec Budget: New Measures to Promote Innovation!

    Quebec’s Minister of Finance tabled his budget for 2020-2021, titled Your Future, your Budget1, on March 10. Among the new measures introduced by the government, new tax incentives for innovation and the commercialization of Quebec intellectual property were announced. The incentive deduction for the commercialization of innovations: establishing the most competitive tax rate in North America The Quebec government is committed to promoting research and development (R&D) and accelerating the development of innovative products through a highly competitive tax environment. The incentive deduction for the commercialization of innovations (the “IDCI”) will allow businesses to benefit from a combined tax rate of 17% on eligible income. Businesses that have an establishment in Quebec, have incurred R&D expenses there and commercialize intellectual property (“IP”) in Quebec will have their revenues from the sale or rental of goods, services and royalties from such IP taxed in Quebec at an effective rate of 2%. IP covered by the IDCI includes software protected by copyrights, patents, certificates of supplementary protection for drugs and plant breeders’ rights. The IDCI also replaces the deduction for innovative companies as ofJanuary 1, 2021. Companies eligible for that deduction will be eligible for the IDCI. The synergy capital tax credit: investing in start-ups The synergy capital tax credit is designed to encourage businesses to invest in innovative SMBs with high growth potential, more commonly known as “start-ups.” A business corporation with a permanent establishment in Quebec that is not primarily engaged in financing or investing in businesses may receive a non-refundable tax credit equal to 30% of the value of its eligible investment, up to a maximum of $750,000 per year, for a total tax credit of $225,000 per year. An eligible investment is an equity participation that does not result in control of an eligible SMB, which the investing corporation deals with at arm’s length. An eligible SMB is a Canadian-controlled private corporation with a permanent establishment in Quebec, with paid-up capital of less than $15 million and gross income of less than $10 million, operating in one of the following sectors: Green technology; Information technology; Life sciences; Innovative manufacturing; Artificial intelligence. Corporations claiming the synergy capital tax credit will have to hold the shares of the eligible SMB for a minimum period of 5 years. Start-ups interested in obtaining the designation of eligible SMB will have to submit an application to Investissement Québec. The investment and innovation tax credit: Modernizing SMBs The investment and innovation tax credit (the “C3i”) is designed to encourage businesses in all sectors to invest in their modernization, particularly in digitization and the use of leading-edge technology. A credit of 10%, 15% or 20%, determined according to the economic vitality index of the area where the investments are made, will be applicable for the acquisition of: Manufacturing and processing equipment; Computer hardware; Management software packages. The C3i will apply to acquisitions made before January 1, 2025, and will be fully refundable for SMBs2. Businesses with total assets and gross income of $100 million or more will also have access to this credit, although it will not be refundable. Eligible expenses for the C3i will be amounts exceeding $5,000 for the acquisition of computer hardware or management software packages and amounts exceeding $12,500 for the acquisition of manufacturing and processing equipment. Businesses involved in the distribution of such hardware and software packages would certainly benefit from informing their customers that the acquisition of their products is potentially eligible for the C3i. Businesses located in resource regions and still benefiting from the tax credit to foster the acquisition of manufacturing and processing equipment introduced in 2008 will be able to choose to continue to benefit from this credit or claim the C3i. Conclusion Quebec’s tax landscape is full of opportunities for innovators and creators of leading-edge technology. We should also mention the enhancement of R&D tax credits that promote collaboration between private businesses and research institutions that contribute to the vitality of Quebec’s knowledge economy. If you are a company involved in R&D and IP commercialization in Quebec, the professionals of Lavery’s intellectual property and taxation teams will be able to support you throughout your projects.   Ministère des Finances, Budget 2020-2021, “Your Future, your Budget,” City of Québec, Government of Quebec The credit repayment rate decreases linearly based on an SMB’s total assets and gross income when they exceed $50 million but are less than $100 million.

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  • New Compensation Method: Employee Benefit Trust Replacing Stock Option Plans

    Nowadays, many employers are seeking out forms of compensation that will help motivate and retain key employees. More and more, employers are opting for one of a variety of company stock ownership profit-sharing plans to reach this objective. Employers who wish to implement this type of structure must ensure that the one they choose most adequately meets their objectives. In this context, employee benefit trusts make it possible to reach objectives that are common to many employers while providing tax treatment that is often much more beneficial to employees. Type of Profit-Sharing Plan With this type of profit-sharing plan, employers must set up a trust and designate employees as beneficiaries. Subsequently, the trust subscribes for or purchases shares of the company. The trustees of the trust (usually the shareholders of the company) then hold these shares acquired for the employees. The deed of trust must include the terms that govern the holding of the shares by the trustees. For instance, it is important to determine which employees will be the beneficiaries of the trust, at which point(s) in time and under which conditions the shares will be designated to the employees, and under which circumstances the company would be able to repurchase the shares. Once the trust is set up, any new employee designated as such by the company may become a beneficiary of the trust. More Flexibility for Employers Employee benefit trusts provide employers with many benefits. First and foremost, employers have more control with an employee benefit trust than with an employee stock option plan (ESOP). Contrary to an ESOP, with an employee benefit trust, employees do not personally hold the company’s shares. Rather, the trustees are the ones holding said shares. As such, employees do not need to attend shareholders’ meetings or have access to the company’s financial information. Furthermore, the fact that the company’s shares are not personally held by the employees prevents problems should a misunderstanding arise with a profit-sharing employee. Furthermore, since the employees are not immediately shareholders of the company, the moment where the employees have to be part of the shareholders’ agreement of the company is postponed to a later date. This type of plan also gives employers much more flexibility in terms of selecting the employees who will become shareholders. If the deed of trust is drafted judiciously, there is no need to finalize the selection of employees who will become shareholders at the time that the trust is set up. Thus, the trust may continue to hold the shares of the company until such time as the employees who will become shareholders are chosen and the necessary conditions for the allotment of shares are met. It is therefore possible to postpone said selection until the sale of the company. In this case, the chosen employees may avail themselves of their capital gains deduction and therefore benefit from tax treatment that is much more advantageous than, say, a bonus at the time of sale. In addition, an employee benefit trust eliminates a common ESOP issue, which is having to frequently determine the fair market value (FMV) of the company’s shares. With an ESOP, the determination of the FMV of the shares underlying the options must be made every time ESOPs are granted in order to ensure that employees receive favourable tax treatment. As ESOPs are usually granted to many shareholders at various points in time over a number of years, the FMV of the company’s shares must be determined repeatedly. An employee benefit trust eliminates the need for this exercise, as the company’s FMV will only have to be established when the shares are acquired by the trust. Benefits for Employees Not only is an employee benefit trust beneficial to employers, but it also provides certain benefits to employees. Just like all other stock ownership profit-sharing plans, employee benefit trusts allow employees to benefit from the company’s future increases in value. Although employees are not shareholders of the company from the time that the trust is set up, they will benefit from all of the capital gain accrued on the participating shares that will be allocated to them by the trust. Moreover, for the purposes of certain provisions of the Income Tax Act (ITA), if a share in trust is held by a trustee, whether absolutely, conditionally or contingently, for an employee, the employee is deemed to have acquired the security at the time the trust began to so hold it. This presumption, set out in subsection 7(2) of the ITA, allows for the beginning of the computation of the two-year period following the owning of the shares, which is relevant for the employees’ eligibility to the capital gains deduction as well as to the deduction in computing the taxable income provided for in paragraph 110(1)(d.1) of the ITA. An employee benefit trust therefore makes certain tax benefits, such as the capital gains deduction, more accessible to employees. Lastly, an employee benefit trust provides a tax benefit to employees in cases in which the shares of the profit-sharing plan have decreased in value since they were issued. In the event that the trust disposes of the securities to the company and that the amount paid by the company to acquire, repurchase or cancel said securities does not exceed the amount that it had previously been paid, employees may deduct an amount to offset the taxed benefit, in accordance with subsection 7(1) of the ITA. Through this tax treatment, employees avoid losing capital at the time of the disposition of the securities to the company, a loss of capital that would remain unusable until employees achieve a capital gain. This scenario may occur, in particular, when an ESOP is implemented. Although an employee benefit trust provides many benefits to employees, this type of profit-sharing plan is more complex than traditional profit-sharing plans. Thus, in situations in which employers wish to share profits with a single employee, it may be appropriate to consider another type of profit-sharing plan. Out team in Taxation and Labour and Employment are ready to advise you and to assist you in implementing them.

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  • What are Revenu Québec's new tools to fight against “aggressive” tax planning?

    On May 17, 2019, the Ministère des Finances du Québec announced new anti-avoidance tax measures in its Information Bulletin 2019-5 (the “Bulletin”) that are in line with today’s tightening of the tax environment and the fight against tax planning deemed to be aggressive. The measures announced on May 17, 2019, essentially target three types of operations: sham transactions; nominee agreements; mandatory disclosure of “prescribed transactions.” Failure to comply with the new measures could have consequences not only for taxpayers having carried out such transactions, but also for various persons associated with or related to said taxpayers. These consequences range from substantial penalties to a ban on doing business with the Government of Québec. The measures also provide for penalties, and, in the case of sham transactions, bans affecting advisers and promoters of such operations. This initiative began on October 15, 20091 and the new measures set out in the Bulletin supplement those announced on November 10, 20172, which included, among other things, penalties imposed on taxpayers3 and promoters of transactions4 when an assessment is issued based on the General Anti-Avoidance Rule (“GAAR”). Most of these measures came into force on February 1, 20185. The new measures Sham transactions The concept of “sham” has been defined as a transaction or a complex series of transactions conducted with an element of deceit so as to create an illusion calculated to lead the tax authorities away from the taxpayer or to confound the tax authorities with respect to the true nature and legal consequences of the transaction(s)6. As announced in the Bulletin, four new measures will apply to assessments, reassessments or additional assessments (an “Assessment”). As a result, taxpayers who are party to a transaction or series of transactions involving a sham could be subject to one or more of the following measures: Longer limitation period to issue a reassessment: The Agence du Revenu du Québec (“Revenu Québec”) will have an additional three years to issue a reassessment for a transaction involving a sham. The limitation period will now be six or seven years rather than three or four years. This measure applies not only to the taxpayer, but also to taxpayers related to or associated with said taxpayer. For example, this measure applies to a taxpayer who is a member of a partnership that is itself party to a sham transaction7. More severe penalties for the taxpayer, promoter and adviser: For a taxpayer having participated in a sham transaction, the new measures introduce a penalty equal to the greater of $25,000 or 50% of the tax benefit generated by the sham transaction; For the Promoter or the Adviser having participated in a sham transaction that will be subject to an Assessment, the penalty will be equal to 100% of the fees paid for said transaction. For the purposes of the new measures and in accordance with section 1079.9 of the Taxation Act, a person is referred to as a “Promoter” if (i) the person or partnership commercializes the transaction or series of transactions, promotes it or otherwise supports its development or the interest it generates; (ii) the person or partnership receives or is entitled to receive, directly or indirectly, a consideration for the commercialization, promotion or support, or another person or partnership related to, or associated with, the person or partnership receives or is entitled to so receive such a consideration; and; (iii) it is reasonable to consider that the person or partnership assumes an important role in the commercialization, promotion or support. In addition, in accordance with section 1079.8.1 of the Taxation Act, an “Adviser” in respect of a transaction means a person or partnership that provides help, assistance or advice regarding the design or implementation of the transaction, or that commercializes or promotes it. In-house and independent tax planners are thus covered by these definitions and are subject to the disclosure obligations and penalties listed below. Suspended limitation period: The limitation period otherwise applicable will be suspended to allow for the issuance of a reassessment to determine the tax consequences arising from a transaction or series of transactions involving a sham when Revenu Québec makes a formal demand for information concerning unnamed persons. These three measures came into force on May 17, 2019, except for a transaction that is part of a series of transactions that began before said date and will be completed before August 1, 2019. Registration in the Register of Enterprises Ineligible for Public Contracts (“RENA”) upon a final assessment: A taxpayer who is the subject of a final assessment in respect of a sham transaction or a promoter or adviser on whom a penalty has been imposed on the same basis will be registered in the RENA. The duration of this ban and the possibility of appealing this decision are not mentioned in the Bulletin and remain unclear. Normally, a five-year ban could apply. In order to obtain the authorization of the “Autorité des marchés publics” to bid for public contracts or subcontracts, the companies concerned will need to obtain a certificate from Revenu Québec confirming that the taxpayer in question has not been the subject of a GAAR-based final assessment nor participated in a sham transaction, in addition to the criteria that already apply, namely that appropriate tax returns and documents have been duly filed and that the taxpayer is not indebted to Revenu Québec. The same will apply to the Promoter or Adviser of the transaction that led to the issuance of the final assessment. The Bulletin announces that these taxpayers will be included on the RENA list. As of the date of this bulletin, this measure has not yet been adopted by the National Assembly. Nominees A nominee agreement is considered to be a valid agreement by which a person is mandated to act in the place of, and in the name of, another person. This type of agreement is often used in real estate transactions. The Bulletin states that the tax legislation will be amended to take into account three new measures: Mandatory disclosure: From now on, any nominee agreement must be disclosed to Revenu Québec within 90 days of its conclusion, using a prescribed form8. No such form is currently available, this does not preclude the taxpayer from providing the information listed in the Bulletin in order to comply with this new measure and avoid any penalties. Penalty for non-disclosure: Failure to comply with the obligation will result in a penalty of up to $5,000. The parties to the nominee agreement will be jointly and severally liable for said amount. Suspended prescription period: In cases where the information return disclosing the nominee agreement is not filed within the prescribed time limit, the prescription period otherwise applicable will be suspended with respect to the tax consequences arising from a transaction or series of transactions that occurred that year and that are part of the nominee agreement. It is important to note that the disclosure made by either party to the nominee agreement will be deemed to also have been made by the other party. These new measures apply to all nominee agreements entered into on or after May 17, 2019. These measures also apply to any nominee agreement entered into before May 17, 2019, for which the tax consequences of transactions relating thereto persist after said date. In these cases, the deadline for disclosure to Revenu Québec is September 16, 2019. Mandatory disclosure and “prescribed transactions” In 2009 and 2015, Revenu Québec implemented measures to counter abusive tax planning that included a mandatory disclosure mechanism for certain transactions deemed to be “aggressive.” The Bulletin states that tax legislation will be amended to extend the scope of this mandatory disclosure mechanism to transactions or series of transactions that will be called “prescribed transactions.” A taxpayer who carries out a prescribed transaction or who is a member of a partnership carrying out a prescribed transaction will be required to file an information return for all transactions that, for a fiscal or taxation year, result in a tax benefit of $25,000 or more or have an impact on income of $100,000 or more. A prescribed transaction will be a transaction or series of transactions whose form and purpose are significantly similar, but not necessarily identical, to those described by Revenu Québec on a list yet to be published. As of the date of this bulletin, said list has not yet been published. Revenu Québec will publish a list of these transactions at such time as it deems appropriate. This measure is not in effect at this time. In addition, an Adviser or Promoter commercializing a prescribed transaction that requires little or no modifications to adapt it to different taxpayers is required to disclose to Revenu Québec, using the prescribed form, the facts relating to the prescribed transaction and any other information provided for in the form. Penalties: : A taxpayer who fails to file the aforementioned information return will incur a penalty of up to $100,000. the taxpayer who fails to comply with this obligation to disclose a prescribed transaction will incur a penalty equal to 50% of the tax benefit obtained as a result of the transaction in question. In addition, the prescription period applicable to a taxation year covered by this information return will be extended in accordance with the current provisions of the Taxation Act; An Adviser or Promoter who fails to file the aforementioned information return will incur a penalty of up to $100,000. Moreover, the Adviser or Promoter who fails to comply with this disclosure obligation will incur a penalty equal to 100% of his or her fees with respect to the various taxpayers to whom he or she has commercialized or promoted the undisclosed prescribed transaction. These measures will apply to all prescribed transactions published by Revenu Québec as of May 17, 2019. For more details, we invite you to refer to the information bulletin 2019-5. Our team specializing in litigation and tax law can help you prevent or resolve any potential disputes with the tax authorities.   Information Bulletin 2009-5. Tax Fairness Action Plan and Information Bulletin 2017-10. Penalty increased from 25% to 50% of the amount assessed. Penalty increased from 12.5% to 100% of the fees paid to the promoter. A ban on contracting with the State when the taxpayer is subject to a final GAAR-based assessment was also provided for, but this measure has not yet been adopted by the National Assembly. This measure would also affect the promoter. Cameco Corporation v. The Queen, 2018 TCC 195. According to the Bulletin, this measure applies to a taxpayer who is party to a sham transaction; a taxpayer who is a member of a partnership that is party to a sham transaction; a corporation associated with the taxpayer or the partnership that is party to a sham transaction at the time that it is carried out; a corporation associated with a taxpayer who is a member of a partnership that is party to a sham transaction at the time that it is carried out; a person related to the taxpayer or the partnership that is party to a sham transaction at the time that it is carried out; a person related to a taxpayer who is a member of a partnership that is party to a sham transaction at the time that it is carried out. The taxpayer must disclose the identity of the parties to the nominee agreement; a full description of the facts relating to the transaction or series of transactions to which the nominee agreement relates; the identity of any person or entity on which such a transaction or series of transactions has tax consequences; and any other information requested in the prescribed form.

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  • Substantial upcoming tax impact on investment funds’ management compensation

    On September 8, 2017, the Minister of Finance introduced unexpected legislative and regulatory proposals regarding partnership distributions to a general partner, which will now be subject to GST/HST. On the other hand, the Québec government has yet to propose similar changes, but we believe it will follow suit, if the federal government adopts such rules. Under the current federal and provincial (Québec) tax regimes, a general partner carrying on activities (such as management or administration) in its capacity as a general partner is generally not considered to be making a supply to the limited partnership, provided such activities are made in the normal course of the partnership’s activities. As such, no GST/HST is applied to distributions made by the partnership to the general partner for such activities. Under the proposed rules, a new tax concept known as an “Investment Limited Partnership” will be introduced into the law. In general terms, a limited partnership will be described as an investment limited partnership if its primary purpose is to invest funds in property consisting primarily of financial instruments, and if it is represented or promoted as a hedge fund, mutual fund, private equity fund, venture capital fund, or other similar collective investment vehicle. For example, this could include limited partnerships in tiered investment fund structures such as master-feeder funds or funds-of-funds. If a limited partnership were recognized as an investment limited partnership, as described above, even if the general partner provides the management or administrative service to the partnership pursuant to its obligations as a partner of the partnership, the provision of the service would be deemed not to be done by the general partner as a member of the investment limited partnership, and the supply of such service would be deemed to have been made otherwise than in the course of the investment limited partnership’s activities. Therefore, certain limited partnership distributions which are paid or became payable to general partners after September 7, 2017 may now be subject to GST/HST, and the limited partnership will normally not be able to claim input tax credits on such distributions. The Minister of Finance will be receiving comments on the proposed rules until October 10, 2017. We are currently studying the new rules in greater detail and recommend that you contact us to discuss potential ways to reduce their negative impact on your structure.

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  • CRS: Be ready for July 1st, 2017

    CRS entry into force: July 1st, 2017 The Common Reporting Standard (“CRS”) will impose new obligations on financial institutions, including investment funds, as of July 1st, 2017. These rules are an addition to the existing Foreign Account Tax Compliance Act (“FATCA”), which applies to Canadian investment funds. The entry into force of the CRS means that, as of 2018, at the time of reporting, any investment fund that does not comply with its due diligence and reporting obligations regarding a reportable account it maintains might be subject to penalties. New guides from the Canada Revenue Agency Guidance on the CRS Guidance on the FATCA Self-certification forms - for entities: English and French - for individuals: English and French The Canada Revenue Agency (“CRA”) recently published new guidance that aims to assist financial institutions in complying with the obligations under the FATCA and the CRS. Here is an overview of the new measures that will be put in place and of recent publications by the CRA. CRS Canada signed the Multilateral Competent Authority Agreement (“MCAA”) on automatic exchange of information on June 2nd, 2015. Through this agreement, Canada committed to implement the CRS. The purpose of the CRS is to make tax avoidance more complex for taxpayers. It advocates for international cooperation through the establishment of a system for the automatic transmission of tax information among the countries which adhere to it. In Canada, the implementation of this standard will be accomplished by way of an amendment to the Income Tax Act.1 This amendment will come into force on July 1st, 2017. In general terms, the CRS requires financial institutions to disclose certain information to the CRA regarding account holders or beneficial owners who are residents of foreign countries. The CRA will in turn transmit this information to the countries concerned and ensure that the taxes owed to these countries are paid. The CRS defines the due diligence procedures that must be put in place, the financial institutions that have to report, the different types of accounts to report, the taxpayers concerned, and the financial account information to be exchanged. The CRS draws significantly from the FATCA.2 Due diligence The due diligence procedure requires financial institutions, including investment funds, to identify reportable accounts by collecting information about account holders. The main objective of this procedure is to determine the tax residency of the account holders and their beneficial owners. Financial institutions are required to collect indicia linked to account holders and request account holders to self-certify their residence status. Any entity or individual who wishes to open an account after June 30th, 2017, and even before, will have to give this information to the investment fund in order to proceed with the opening of the account and the investment. Reporting Every financial institution, including every investment fund, will have to report to the CRA the required information on reportable accounts collected during the due diligence procedure. The reporting is done electronically. General information such as the name, address, foreign taxpayer identification number, jurisdiction, and birth date of the holder will be reported to the CRA if the account is classified as a reportable one. Institutions will also have to communicate the account balance, at the end of the year, and the payments made during the year. This information will be sent directly by the CRA to the tax authorities in the country of residence of the account holder or of the beneficial owners. New publications from the CRA On March 22nd, 2017, along with the presentation of the 2017 federal budget, the CRA released two new guidance documents, one on the CRS and one on the FATCA, intended for financial institutions. In addition to the guidance documents, the CRA also introduced new online self-certification form templates that can be used by financial institutions in order to ensure that they have obtained all the necessary information to comply with the standards. The use of these forms is not mandatory, but it is recommended by the CRA. Institutions that make the decision to continue using their own forms or the American W8 forms will need to ensure that they meet all their obligations and that their forms allow the collection of all necessary information and attestations from account holders. Income Tax Act, R.S.C. (1985), c. 1 (5th Supp.), section XIX. www.lavery.ca/en/publications, see our newsletter Lavery Capital, No. 4, April 2015.

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  • Artificial Intelligence and the 2017 Canadian Budget: is your business ready?

    The March 22, 2017 Budget of the Government of Canada, through its “Innovation and Skills Plan” (http://www.budget.gc.ca/2017/docs/plan/budget-2017-en.pdf) mentions that Canadian academic and research leadership in artificial intelligence will be translated into a more innovative economy and increased economic growth. The 2017 Budget proposes to provide renewed and enhanced funding of $35 million over five years, beginning in 2017–2018 to the Canadian Institute for Advanced Research (CIFAR) which connects Canadian researchers with collaborative research networks led by eminent Canadian and international researchers on topics including artificial intelligence and deep learning. These measures are in addition to a number of interesting tax measures that support the artificial intelligence sector at both the federal and provincial levels. In Canada and in Québec, the Scientific Research and Experimental Development (SR&ED) Program provides a twofold benefit: SR&ED expenses are deductible from income for tax purposes and a SR&ED investment tax credit (ITC) for SR&ED is available to reduce income tax. In some cases, the remaining ITC can be refunded. In Québec, a refundable tax credit is also available for the development of e-business, where a corporation mainly operates in the field of computer system design or that of software edition and its activities are carried out in an establishment located in Québec. This 2017 Budget aims to improve the competitive and strategic advantage of Canada in the field of artificial intelligence, and, therefore, that of Montréal, a city already enjoying an international reputation in this field. It recognises that artificial intelligence, despite the debates over ethical issues that currently stir up passions within the international community, could help generate strong economic growth, by improving the way in which we produce goods, deliver services and tackle all kinds of social challenges. The Budget also adds that artificial intelligence “opens up possibilities across many sectors, from agriculture to financial services, creating opportunities for companies of all sizes, whether technology start-ups or Canada’s largest financial institutions”. This influence of Canada on the international scene cannot be achieved without government supporting research programs and our universities contributing their expertise. This Budget is therefore a step in the right direction to ensure that all the activities related to artificial intelligence, from R&D to marketing, as well as design and distributions, remain here in Canada. The 2017 budget provides $125 million to launch a Pan-Canadian Artificial Intelligence Strategy for research and talent to promote collaboration between Canada’s main centres of expertise and reinforce Canada’s position as a leading destination for companies seeking to invest in artificial intelligence and innovation. Lavery Legal Lab on Artificial Intelligence (L3AI) We anticipate that within a few years, all companies, businesses and organizations, in every sector and industry, will use some form of artificial intelligence in their day-to-day operations to improve productivity or efficiency, ensure better quality control, conquer new markets and customers, implement new marketing strategies, as well as improve processes, automation and marketing or the profitability of operations. For this reason, Lavery created the Lavery Legal Lab on Artificial Intelligence (L3AI) to analyze and monitor recent and anticipated developments in artificial intelligence from a legal perspective. Our Lab is interested in all projects pertaining to artificial intelligence (AI) and their legal peculiarities, particularly the various branches and applications of artificial intelligence which will rapidly appear in companies and industries. The development of artificial intelligence, through a broad spectrum of branches and applications, will also have an impact on many legal sectors and practices, from intellectual property to protection of personal information, including corporate and business integrity and all fields of business law. In our following publications, the members of our Lavery Legal Lab on Artificial Intelligence (L3AI) will more specifically analyze certain applications of artificial intelligence in various sectors and industries.

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  • Federal budget and capital gain: Time for tax planning

    There is currently speculation in the media that Liberal Finance Minister Bill Morneau’s next federal budget will increase the capital gain inclusion rate from 50% to 75%.The combined marginal tax rate on capital gains is currently 26.7% for a resident of Québec. This rate would reach nearly 40% if the budget was to increase the capital gain inclusion rate to 75%. A $1,000,000 capital gain would thus generate approximately $133,000 in additional taxes. Proposed tax planning Assuming that the rumour materializes, it is possible to counter the adverse effects of such change by implementing a simple tax planning measure before the budget is tabled. The planning involves transferring assets that have appreciated in value to a corporation. Subject to certain conditions, the transfer allows for the gain to be made prior to the new rules coming into force, thus allowing the taxpayer to benefit from the current 50% inclusion rate. Such a course of action could be of interest to someone who is considering selling assets in the short or medium term. Impact if anticipated measure is not adopted Should the budget not include the anticipated change, it would be possible to reduce and even cancel the capital gain by filing rollover tax forms after the budget is released. No gain would be realized and consequently no tax would be payable. Our highly qualified tax team is available to assist you in that regard.

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  • Changes to the Taxation of Switch Funds

    Effective January 1, 2017, new rules will govern the taxation of mutual fund corporations structured as “switch funds”. Investors switching between funds will no longer be able to do so without incurring taxable capital gains. This article summarizes the impact of such changes. Description of “switch funds” under the current regime In Canada, most mutual funds are structured as trusts and some are structured as corporations (referred to as “corporate class funds”). The mutual fund trust is comprised of a single fund in which investors receive units of the trust, while the corporate class fund can hold several funds. Each fund is structured as a different class of shares, giving investors access to different investment portfolios of the corporation. Under the corporate class structure, investors have the advantage of being able to switch between funds without incurring capital gains or losses. This is because the current rules deem switches between funds not to be a disposition of shares of the corporation, resulting in a tax deferral which is not available to investors of mutual fund trusts. Capital gains tax will be paid later upon the future disposition of the corporation’s shares. Impact of the 2016 Legislative Proposals Effective January 1st 2017, taxpayers switching between funds will be considered to have disposed of their original shares at fair market value and will therefore immediately be taxed on capital gains. However, the 2016 Legislative Proposals provide for the following two exemptions, allowing tax deferral in these specific cases: If the exchange or disposition occurs in the course of a transaction covered by section 86 of the Income Tax Act (“ITA”) or an amalgamation under section 87 ITA, a shareholder will be entitled to a tax deferral provided that: i) all shares of the particular class are exchanged, ii) the original and new shares derive their value in the same proportion from the same property, and iii) the exchange was strictly done for bona fide reasons and not to obtain a tax deferral; or If shares of a class of the mutual fund corporation are exchanged for shares of the same class, provided that: i) the original and new shares derive their value in the same proportion from the same property, and ii) that class is recognized under securities legislation as a single investment fund. The above-mentioned changes will be implemented as of January 1, 2017. Therefore, investors wishing to switch shares within a mutual fund corporation have until December 31, 2016 to benefit from the current tax deferral rules.

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