Tax credits for new financial services corporation (NFSC)

The government has put in place tax measures to support entrepreneurship in the financial sector. More specifically, they aim to create new financial services corporations (NFSC) in Québec.

To benefit from these tax measures, corporations must hold the qualification certificate and annual certificates. The qualification certificate is valid for a maximum of five years.

To be eligible for financial support, the new corporation must meet certain criteria. It must:

• Be operated by a corporation. Partnerships, tax‑exempt corporations and personal service businesses are not eligible
• Have an establishment in Québec and operate a business, company or firm there
• Hold a registration, or a registration exemption, with the Autorité des marchés financiers (AMF)
• Carry out – or intend to carry out – activities that no other corporation has previously carried out. Unless otherwise specified, the corporation must demonstrate that none of its activities is in any way a continuation of an activity already initiated by another corporation
• Carry out only eligible activities
• Act wholly or substantially (at least 90%) on behalf of clients with whom it deals at arm’s length

Examples of clients with whom the corporation may not deal at arm’s length:

• corporation shareholder
• family member of a shareholder
• the corporation’s head office
• subsidiary or sister corporation
• corporation or individual who is a controlling shareholder (or a member of their immediate family)
• an investment fund incorporated as a limited partnership and its manager
• an investment fund incorporated as a trust and its manager

Moreover, a corporation cannot carry out activities for itself.

At the time of the certificate application

At the time of the certificate application, the new corporation must meet the following criteria:

• the application must be submitted before the end of the corporation’s second taxation year
• the shareholders’ equity must be less than $15 million. The shareholders’ equity is equal to the excess of assets over liabilities of the new corporation and each corporation associated with it, minus the equity investments held by these corporations in one another

More specifically, two corporations are associated in a taxation year when, during that year, they are in one of the following situations:

• one of the corporations controls the other; for example, one corporation holds more than 50% of the voting shares of the other corporation.
• both corporations are controlled by the same person or group of persons.
• the person who controls one of the two corporations is related to the person who controls the other corporation, and either of these persons owns not less than 25% of the issued shares of any non-specified class of the capital stock of each corporation.
• the person who controls one of the two corporations is related to each member of a group of persons who controls the other corporation, and that person owns not less than 25% of the issued shares of any non specified class of the capital stock of the other corporation.
• each member of the related group that controls one of the two corporations is related to all members of the related group that controls the other corporation, and one or more members of those two groups own not less than 25% of the issued shares of any non specified class of the capital stock of each corporation.

In all cases, control may be exercised directly or indirectly, in any manner whatever.

Eligible employees

Some employees may qualify as eligible employees as part of the tax measures applicable to new financial services corporations (NFSC).

To be considered an eligible employee for a given period, an employee must:

• work full‑time, that is, a minimum of 26 hours per week;
• have an employment contract for a minimum of 40 consecutive weeks;
• perform functions directly attributable to the specific transactional process of the activities specified in the corporation’s certificate;
• spend at least 75% of their duties to the execution of eligible activities;
• work in the corporation’s establishment located in Québec.

A corporation holding NFSC status may benefit from refundable tax credits on eligible expenses and salaries for a maximum of five consecutive years.

Refundable tax credit for eligible expenses

The corporation may benefit from a refundable tax credit equal to 32% of the qualifying expenses incurred. The tax credit can reach $120,000 per year.

Eligible expenses include:

• fees relating to the constitution of:
  • the first regulatory file with a recognized regulatory or self-regulatory organization of a financial market
  • the first application for participation in a stock exchange
  • a prospectus required by a recognized regulatory or self-regulatory organization of a financial market
• fees paid to a compliance consultant to ensure compliance with the requirements of a recognized regulatory or self-regulatory organization of a financial market
• fees, contributions and charges paid to a regulatory or self-regulatory organization of a financial market
• fees and charges incurred as a participant in a stock exchange
• fees for:
  • logging in and using an electronic trading solution for participation in a stock exchange
  • a subscription to a financial research or analysis tool or service

For more details, consult the Tax Credit for New Financial Services Corporations page on the Revenu Québec website.

Refundable tax credit on the salary of eligible employees

The corporation may benefit from a refundable tax credit equal to 24% of the eligible salary paid to employees. An employee’s eligible salary is limited to $100,000 for a full taxation year. The tax credit can therefore reach $24,000 per employee, per year.

If an employee has only worked for part of a taxation year (for example, in the case of a hiring or departure during the year), the maximum amount of the tax credit is calculated on a prorated basis according to the number of qualifying days.

For more details, consult the Tax Credit for the Hiring of Employees by New Financial Services Corporations page on the Revenu Québec website.

To benefit from tax advantages, the corporation must obtain the NFSC status and the required annual certificates from the Ministère des Finances. To claim the tax credits, the corporation must attach to its income tax return the form prescribed for this purpose by Revenu Québec as well as a copy of the annual certificates issued by the Ministère des Finances.

For more information on the calculation and claiming of the tax credits or to obtain a list of the documents needed for the income tax return, visit the Revenu Québec website.