A surprising 79 per cent of Canadian family business leaders say they are speeding up their leadership succession plans due to growing pressures. They say new tax rules are adding to a radically shifting business landscape, pushing nearly three quarters to transition their businesses in the next three to five years.
The insights come from the family-owned business leaders who responded to KPMG’s Private Enterprise Business Survey. The firm surveyed 700 small and medium-sized businesses, 41 per cent of which were family-owned businesses. Of those respondents, 73 per cent say they expect to transition their businesses to new leadership within three to five years.
“Notably, 70 per cent say they are accelerating their succession plans or putting them into effect before January 1, 2024 to avoid incoming tax changes. The new rules set out more stringent requirements than existing rules for the intergenerational transfer of shares of a family-owned corporation,” the firm states.
“That window is closing very quickly,” says Chris Gandhu, partner and Calgary family office leader with KPMG. “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. Whether these family business leaders choose to sell to a third party or pass the torch to the next generation, there are significant businesses and tax implications to consider at this time.”
They add that 69 per cent said they intended to sell to a third party. Of those surveyed, they say 72 per cent felt that employee ownership trusts (EOTs) with a capital gains exemption for owners could have a positive impact on the economy.
“The 2023 federal budget released draft legislation to create a specific tax regime for EOTs as a tool to facilitate employee ownership in Canada. The government's latest Economic Update announced plans to introduce a temporary tax exemption (2024-2026 tax years) that would apply on the first $10-million in capital gains realized on the sale of a business to an EOT under certain conditions,” they write.
Of those surveyed, they say 28 per cent strongly agreed they will close up shop and walk away from their businesses in the next three to five years.