New tax rules add to mounting pressures to transition businesses in next three to five years, finds poll
Amid growing internal and external pressures, four in five family business leaders in Canada (79%) are accelerating their transition and leadership succession plans, according to a new KPMG in Canada survey report.
The survey, which draws on the perspectives of 285 family business leaders from the KPMG Private Enterprise Business survey, revealed nearly three quarters (73%) are expecting to transition to new leadership within three to five years.
Among the factors cited by the leaders polled were a constantly shifting business and economic landscape, technological disruption, tax changes, and climate realities, as well as the complexities of family dynamics.
“As a generation of family business founders and owners decide whether or not to step down as CEO, difficult decisions about what should happen to the business, next generation readiness, and how best to preserve family wealth and legacy all need to be carefully examined," Yannick Archambault, Partner, National Leader, KPMG Family Office, said in a statement.
“Successful families that take a multidisciplinary approach to addressing emerging challenges and have been proactively preparing the business, their family and their successors will be in a better position to choose the optimal path forward," Archambault said.
Among the family business leaders surveyed, 71% said they have a detailed succession planning process and/or formal plan in place to ascertain the continuity of their businesses. Another 19% said they have a plan, but not a detailed one, while 6% don’t have a plan but report their families have an understanding of who’ll be next in line to run the business.
The survey also found 70% of family business leaders are accelerating their succession plans or effecting them before January 21, 2024 to avoid incoming tax changes introduced in the 2023 federal budget.
Those changes, which impact the tax treatment of business transfers to a family member, will have ramifications for business owners’ ability to claim a lifetime capital gains exemption, with more stringent requirements that what exist currently for the intergenerational transfer of shares of a family-owned corporation.
“Depending on a number of factors, family business owners who are contemplating passing on the business to their adult children or grandchildren may opt to do so before new tax rules take effect, but that window is closing very quickly," said Chris Gandhu, Partner, KPMG Family Office Leader for Calgary.
"Decisions of this magnitude are about more than tax relief strategies, but advisors should be having discussions with their clients now to inform them about their options,” Gandhu said.
