COVID-19: Tax planning and contractual obligations’s impacts for SMEs

Written by Marc-André Perreault

April 9, 2020 – Are you aware of the COVID-19’s impacts on tax planning and contractual obligations?

On April 5, the Government of Québec announced the shutdown extension for businesses that are considered non-essential until May 4. Those that remain open during this period will see their revenues affected, most often downwards.

It is essential for businesses to consider their various contractual obligations to try negotiating flexibilities that will enable them to get through this period of crisis more effectively.

We can help businesses that have questions regarding:

  • Commercial leases;
  • Supply contracts with suppliers;
  • Goods to be supplied and services to be provided to clients with timelines;
  • Bank, institutional and private financing;
  • Terms of payment of shares purchase price or society assets.

In this context, we advise you to remain flexible and proactive to ensure that you avoid contractual default situations that could slow down the recovery of your normal activities.

In addition, we suggest that entrepreneurs who have recently implemented a tax reorganization, to consult their tax advisor to ensure that the parameters of the reorganization remain current. For example, if an entrepreneur has recently implemented a corporate freeze in favour of his succession, it may be well advised to evaluate the impact of the current crisis on the value of the business. If the business is significantly and lastingly affected by the crisis, it may be necessary to reassess the value of certain assets, particularly goodwill.

The temporary decline in the business value may also allow the business to put in place tax planning that is advantageous for its shareholders. If, for example, assets that are not essential to the business have to be moved elsewhere within a corporate group to purify an operating company, it may be advantageous to take advantage of the current situation to do so at a lower cost.

In sum, we invite you to contact your legal and tax advisor to benefit from a head start as soon as the situation returns to normal.