These TAXE$ that we pay

Spring 2015
Quarterly bulletin
These TAXE$ that we pay...
Our taxes allow us to pay for services for the whole community
but at what price?
Some taxes are visible, and we can appreciate their impact on
us: income taxes, sales taxes, etc.
Other taxes are less obvious as they form part of the total price
such as taxes on gas or the premium tax recently increased in
the last provincial budget from 2.30% to 3.48%, a 51% increase!
This premium tax is applied onto itself, meaning that the tax of
3.48% is also taxed at 3.48%, resulting in double taxation
making the effective rate 3.61%.
Furthermore, this tax of 3.61% is included in the group
insurance premium to which the Quebec sales tax of 9% is
The portion of the group insurance premium paid by the
employer becomes a taxable benefit in the hands of the
employees. Additionnally, in the majority of cases, the
premium paid by the employer is added to his payroll onto
which other taxes are applied.
At the end of the day, the compound effect is considerable.
The average family in Quebec, with a family income
estimated at $77,381, pays $32,369 in income tax and
other taxes or 42% of its total income. This translates
into working nearly 6 months merely to cover annual
income taxes and other taxes. Although we have little
or no power over tax rates, we do have the power to
decide on our consumption level. By reducing our
consumption, we then also reduce the taxes we pay.
Of course, we cannot do without essentials, but we
certainly can return to basics.
Group insurance plans, in their current design, must be
redefined to provide insurance, that is, coverage for
catastrophic losses that could not be entirely assumed
by the insured. Current group insurance plans provide
reimbursements for medical and/or dental expenses
with annual limits.
Choosing the right group retirement plan
With last year’s launch of the voluntary retirement savings plans (VRSP), there is now a
wide variety of retirement savings vehicles being offered to companies. But how can we
find our way around them? If we put aside the defined benefit pension plans, which are in
a class of their own by guaranteeing a retirement income, the employer who wishes to
contribute to the financial security of his employees at retirement will have to determine
the accumulation vehicle that will meet its objectives. Although the purpose of this article
is not to do an in-depth analysis of group retirement plans, there are some simple rules to
consider. While group RRSP used to be the employers’ standard vehicle in the past, it’s
preferable to add a DPSP (or deferred profit-sharing plan) component to it for the
employer’s contribution. This allows the employer to avoid increasing his total payroll and
to reduce some payroll taxes that would otherwise apply.
Joanne Déziel, RLU
Coverages with annual limits are not insurance in the
true sense of the word since the loss is limited. They
are reimbursement plans with premiums based on
the level of claims filed by the insured.
The reimbursement portion of group insurance plans
accounts for nearly 70% of total cost while true
insurance protection is the remaining 30%. It is time to
revisit how we design our group insurance plans. It is
possible to generate savings that could be used
towards retirement funds with the added benefit of
reducing the taxes we pay.
The economic viability of our group insurance plans
depends on our capacity to pay. Costs related to
employee benefits are an important item for the
employer. We must also consider that, as a whole, the
working or active population is aging. It is time to
change our model and offer benefit plans that will
meet the needs of a population edging towards
retirement. Do not hesitate to contact your dElta
advisor for more assistance.
This type of vehicle (RRSP / DPSP combination) is one of the most flexible ones, especially
with respect to eligibility rules and the manner in which contributions are made. The
employer who wants his contributions to solely go towards providing a regular retirement
income will likely choose the simplified pension plan (better known as SPP). However, that
plan is only offered to Quebec workers. As for the VRSP, it is less expensive, but the rules
that regulate it are stricter and leave little room for customisation. Finally, the defined
contribution registered pension plan requires more supervision by the employer and a
pension committee being formed. It is more suitable for larger companies with activities in
many Canadian provinces. In the next infodElta, I will elaborate a little bit more on these
different types of group retirement plan.
Author: Sébastien Cliche, Leader Actuarial Services
Spring 2015
Quarterly bulletin
Human Resources
Is your organization considering a merger,
acquisition or buyout?
What is the role of human resources in
these situations?
Did you know that according to a study by McKinsey
Global Institute, 70% of mergers and acquisitions are failures? Three major factors explain the poor performance:
overly optimistic expectations about the potential
of value creation;
an excessive price tag;
problems in the implementation phase.
The contribution of human resources throughout all stages
of the process is critical to achieve success. Too often,
human resources aspects are neglected in the initial phase
(due diligence) that is relegated exclusively to owners,
accountants and lawyers.
The importance of due diligence to
avoid bad surprises
It is crucial to ensure that the "seller" has fulfilled its legal
obligations because you could be held responsible for past
mistakes. An experienced human resources consultant can
give you valuable advice that could avoid many problems.
For example, has the company fulfilled its obligations in
regards to pay equity? Insist the company demonstrate they
have completed the pay equity exercise before the signing
of the agreement. Non-compliance with these obligations
could result in substantial costs that would change the end
result on the profitability of the transaction.
Lacoste, CRHA
HR Consultant
In addition, do not neglect to look at your labor contract
agreements. In the vast majority of cases, section 122-12 of
the Labour Code applies and the employment relationship
is maintained.
If so, what were the commitments made by the previous
owner towards employees that you now manage? You may
have to live with agreements and promises that you have
not made. Make sure you have a copy of the employment
contract and the complete employee files.
Once the financial and legal details are
settled, the game is still far from over
The integration phase is crucial to the success of the new
organization. Countless efforts are required to consolidate
and create a new culture.
Beware, the resources required to manage change are
much greater then to support your typical daily operations.
You would have everything to gain to deploy additional
resources to successfully get you through this phase.
Important changes are too often linked to a tense work
environment where individuals are concerned about their
own future. "Acquisitions are often seen as a punishment
for poor management, which results in a winners/defeated
type of relationship where one side manifests a sense of
arrogance and the other develops an inferiority complex
which prohibits engagement towards the new
employer" (Hayes, 1979).
156 rue St-Denis, St-Lambert, QC J4P 2G2
Consequences: high absenteeism, reduced commitment, lower
productivity, risk of unionization, etc.
Pay attention to the "survivors"
The acquiring company often believes that employees who
are staying will be happy to keep their jobs and will
positively welcome change. We often forget that they have
had a significant shock, they are destabilized and they have
to mourn before engaging with the new employer. The
involvement of outside experts not only helps you cope with
the increased demand, but can also ease the transition as a
neutral external party.
In conclusion, transactions are often the result of intuitive
decisions rather than in-depth analysis. "Much research
converges to show that the failure rate of mergers and
acquisitions is extremely high, one of the main causes of
failure is the underestimation of the human factor " (Brayer
and Mayerhofer, 2002).
If you decide to go ahead with an acquisition or merger, do
not hesitate to contact our human resources experts who
can help you put the odds on your side.