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Government legal and fiscal measures designed to keep businesses in Quebec

Government introduces a number of legal and fiscal measures designed to keep businesses in the province of Quebec.

On February 21, 2017, the Quebec government announced a plan to strengthen the Quebec economy as an executive-driven economy. The plan includes the enhancement of existing measures and the development of a number of new fiscal and legal measures designed to keep businesses in Quebec and facilitate the transfer of family businesses, therefore limiting the risk of their sale to foreign interests. The key measures include:

  • Deferred payment of tax under certain circumstances: The possibility to defer the payment of tax due on capital gains realized upon the death of an individual or 21 years after the creation of a trust on the shares of a corporation listed on the stock exchange representing at least one-third of the voting rights of the corporation, if certain conditions are met, particularly during the deferral period;
  • Extension of measures announced as part of the budget speech of March 2016 applicable to the sale of certain businesses: The government announced measures designed to extend the application of certain tax benefits to include the sale of a business in the primary and manufacturing sectors to persons not dealing at arm’s length with the seller. Previously, these benefits were limited to sales between arm’s length persons. The government is now proposing to extend these measures even further to include the sale of a business in the service and construction sectors. In general, these benefits relate to the realization of a capital gain and the use of the capital gains exemption of up to $824,176;
  • Harmonization of taxation of stock options with the federal regime: Under certain circumstances, increase of the stock option deduction rate to 50% (from 25%) for corporations listed on the stock exchange with payroll in Quebec of $10 million or more, in line with the federal measures when certain conditions are met, thus closing the gap between Quebec’s deduction rate and the rate in the rest of Canada.
  • A harmonized Canadian system governing hostile takeover bids: The Quebec government does not currently intend to introduce other amendments to Quebec regulations for the purpose of governing hostile takeover bids, which would give greater leeway to boards of directors; therefore, choosing not to reopen, at least for the time being, the debate that preceded the adoption of the harmonized Canadian system governing hostile takeover bids, which was published on January 15, 2016, by the Canadian Securities Administrators (CSA) and came into force on May 9, 2016. The new system was preceded by a long debate opposing two schools of thought: the Autorité des marchés financiers favoured an approach inspired by the “just say no” regime of certain American jurisdictions, while other members of the CSA favoured a system that ultimately allowed the target’s shareholders to decide what the outcome of the takeover bid would be. With its announcement, the Quebec government maintains the status quo while allowing itself the possibility of reopening this debate. It will be interesting to see what proposals and strategies will be put forward, especially in the context of the jurisdictional debate surrounding the federal government’s proposal to create a national securities commission.
  • Deployment of the Financial Initiatives Group: The plan also outlines the deployment of the Financial Initiatives Group, made up of representatives of Investissement Québec, tax-advantaged funds (Fondaction, Fonds de solidarité FTQ and Capital régional coopératif Desjardins) and institutional funds, as well as representatives of the financial sector, who will, notably, have the mandate to guide the government in its financing initiatives.

By: Clemens Mayr, Christian Meighen and Marie-Soleil Landry, McCarthy Tetrault LLP

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