Features of the IFC Tax Credit
Under the measure, a corporation that holds an IFC certificate and which conducts back-office operations can receive, for a taxation year, a refundable tax credit representing 24% of the eligible salary incurred for the year regarding its eligible employees other than foreign specialists, up to an annual maximum of $16,000 per employee. A qualified corporation which conducts front-office operations can receive, for a taxation year, a non-refundable tax credit representing 24% of the eligible salary incurred for the year regarding its eligible employees, up to an annual maximum of $16,000 per employee.
In addition, a foreign specialist employee who works at an IFC can claim, for a period of five years, a deduction in calculating all of his taxable income at an annual rate that varies as follows: 100% the first two years and 75%, 50%, and 37.5% respectively for subsequent years.
A corporation may be eligible if its activities focuses on at least one of the 25 categories of qualified international financial transactions (QIFTs) and if it satisfies the other conditions stipulated in the legislation regarding the tax credit program for IFCs.
Generally speaking, QIFTs must be carried out on behalf of:
- a customer that does not reside in Canada;
- a customer that does reside in Canada, in which case the QIFT must focus on “foreign exposure” financial products.
Eligible transactions (QIFTs)
To qualify as an IFC, the corporation’s financial transactions must fall under at least one of the following categories:
- Transaction on outstanding securities or securities distribution
- Operation of a clearing house
- Securities advising or portfolio management
- Deposit of money
- Lending of money
- Lending or borrowing of money between corporations operating an IFC
- Acceptance or issuance of a letter of credit
- Financing or refinancing by means of a bill of exchange
- Execution of foreign exchange transactions
- Financial packaging services
- Financial engineering services
- Damage insurance brokerage services
- Reinsurance of a risk arising from a damage insurance contract
- Trust services
- Factoring services
- Leasing services
- Organization of a qualified investment fund
- Administration of shares of a qualified investment fund
- Management of a qualified investment fund
- Distribution of shares of a qualified investment fund
- Cash management
- Back office activities for a third party
- Documentary collection
- Activities performed under the Québec Immigrant Investor Program (QIIP)
- Discount operation carried out regarding a letter of credit or a commercial instrument
Under the provisions of the legislation regarding the tax credit program for IFCs, an IFC means a business or part of a business that satisfies the following conditions:
- it is operated by a corporation;
- it employs, at all times, a minimum of six eligible full-time employees (for the purposes of this criterion, the expression “eligible employees” includes foreign specialists and local employees who hold an employee – local or foreign specialist – qualification certificate issued by the Minister of Finance);
- its activities focus on QIFTs;
- the activities enabling the QIFTs effected in the course of its operations to be carried out must be managed entirely within the territory of the agglomeration of Montréal;
- its activities are grouped together in one place within the territory of agglomeration of Montréal;
- it holds an annual eligibility certificate for itself and for its eligible employees issued by the Minister of Finance.
Local employees – for the purposes of the tax credit
To be eligible, a local employee must hold a full-time job at least 75% of whose duties with the IFC are devoted to the execution of qualified international financial transactions (QIFTs).
- The duties of an employee are devoted to the execution of QIFTs when they are directly attributable to the specific transactional process of a given QIFT.
- For greater clarity, the expression “full-time” means a minimum of 26 hours of work per week, for a stipulated minimum of 40 weeks.
Foreign specialist employees – for the obtaining of a personal tax benefit
Generally speaking, a foreign specialist employee is eligible where at least 75% of his duties with the IFC are devoted to the operations of the IFC.
An IFC operator that wishes to have a foreign specialist employee benefit from this measure must first apply to the Minister of Finance to have a foreign specialist certificate issued for him.
Eligible salaries for the purposes of calculating the tax credit
The eligible salary, for a taxation year, means the salary calculated according to the Taxation Act of Québec and paid in the year to its eligible employees other than foreign specialists.
The eligible salary, regarding an eligible employee, is limited to an amount of $66 667, calculated on an annual basis, i.e. according to the number of days of the taxation year of the eligible corporation during which the employee qualifies as an eligible employee.
Eligibility period and duration
- The tax credit program for IFCs is unlimited in duration.
- The eligibility period of a foreign specialist for a personal tax benefit is five years.
To be entitled to the tax credit, a corporation that intends to operate an IFC must first obtain a qualification certificate from the Minister of Finance for the IFC it intends to operate, on the one hand, and for its eligible employees, on the other.
Annual certification process
Finance Montréal has set up a very simple STEP 1, STEP 2 application process. You can count on its experts and consultative approach. You can contact us at any time to obtain further information.
STEP 1 – Pre-application
Finance Montréal has created a 10-working-day validation process with the Ministère des Finances du Québec, which administers the tax program.
The company must provide Finance Montréal with an executive summary of its business intentions for their Montréal office.
STEP 2 – Application for a certificate of eligibility
Once the Ministère des Finances du Québec approves the pre-application, the company that intends to operate an IFC must obtain a certificate of eligibility. Finance Montréal will provide you with all the information needed when you reach this point.
For more details concerning fees for the corporation and employees, please consult the Table on Tariffs and Annual Contributions.
Learn more about tariff of fees for IFCs and annual contribution.
Additional tax programs
Creation of a new financial services corporation
In the March 20, 2012 Québec Government Budget Speech, new fiscal measures were introduced for a period of five years to encourage the creation of new financial services corporations in Québec:
- The tax credit relating to a new financial services corporation
- The tax credit for the hiring of employees by a new financial services corporation
For further information on these tax credit programs, please visit the ministère des Finances webpage.
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