Tax credit for international financial centres (IFC)

The government has implemented tax measures for international financial centres (IFCs) to encourage the establishment, development and retention or corporations specializing in international financial activities in the urban agglomeration of Montréal. To benefit from these measures, a corporation must have IFC status.

This status allows a corporation or part of a corporation that carries out qualifying international financial activities to benefit from tax credits covering a portion of the salaries of local employees.

It also allows foreign specialist employees to benefit from a deduction in the calculation of their taxable income for 5 consecutive years.

Note: it is no longer possible to submit a new application for the issuance of a foreign specialist qualification certificate. However, foreign specialists who already hold a valid qualification certificate will be able to receive an annual certificate each year until the end of their eligibility period.

To be eligible for financial assistance, the business must hold IFC status. To obtain this status, it must meet all of the following eligibility conditions:

• Be operated by a corporation (partnerships and tax-exempt corporations are not eligible).
• Propose a project with new activities that:
  • have not started more than 12 months before the date of the application for a qualification certificate or before the addition of an activity to the qualification certificate;
  • start no later than 24 months after the date of the application for a qualification certificate.
• Only carry out activities related to one or more qualifying international financial activities.
• Employ a minimum of six eligible employees at all times, including local employees and foreign specialists holding a qualification certificate and an annual certificate, at each of its eligible facilities.
• Conduct all qualifying international financial activities in one or more of the eligible facilities within the territory of the urban agglomeration of Montréal.
  • The Montréal agglomeration is formed by the territories of the cities of Montréal, Baie D’Urfé, Beaconsfield, Côte-Saint-Luc, Dollard-Des-Ormeaux, Dorval, Hampstead, Kirkland, L’Île-Dorval, Montréal-Est, Montréal-Ouest, Mont-Royal, Pointe-Claire, Sainte Anne-de-Bellevue and Westmount, as well as the town of Senneville.

Qualifying international financial activities are grouped into three broad categories. A corporation with IFC status can carry out activities that fall under one or more categories.

• International financial transactions
  Financial transactions carried out on behalf of a foreign client or including a foreign component: a product with foreign exposure, a foreign consideration, etc.
• Back-office activities for a third party
  Back-office activities arising from international financial transactions carried out by another entity.
• Financial activities arising from an outsourcing contract
  Activities carried out under a service agreement related to operations conducted outside Canada by a foreign financial entity.

These activities must be carried out by eligible employees, whether they are local employees or foreign specialists.

The tax benefit for a corporation holding IFC tatus can reach $18 000 per year, per employee. The type of tax benefit varies according to the category of activities carried out by the corporation.

International financial transactions (front office)

The corporation may benefit from a non-refundable tax credit equal to 24% of the qualifying salary paid to eligible local employees.

For the purposes of the tax credit, this salary is limited to $75 000 for a full taxation year. The tax credit can therefore reach $18 000 per employee, per year.

If the salary is calculated for part of a taxation year (for example, in the case of a hiring or departure during the year), the maximum amount of the qualifying salary is calculated on a prorated basis according to the number of qualifying days.

Back-office activities for a third party

The corporation may benefit from refundable tax credit equal to 24% of the qualifying salary paid to eligible local employees.

For the purposes of the tax credit, the salary is limited to $75 000 for a full taxation year. The tax credit can therefore reach $18 000 per employee, per year.

If the salary is calculated for part of a taxation year (for example, in the case of a hiring or departure during the year), the maximum amount of the qualifying salary is calculated on a prorated basis according to the number of qualifying days.

Financial activities arising from an outsourcing contract

The corporation may benefit from a refundable tax credit equal to 24% of the qualifying salary paid to eligible local employees.

For the purposes of the tax credit, the salary is limited to $75 000 for a full taxation year.

If the salary is calculated for part of a taxation year (for example, in the case of a hiring or departure during the year), the maximum amount of the qualifying salary is calculated on a prorated basis according to the number of qualifying days.

Then, 20% of the total refundable tax credit is deducted. For example, for a corporation with six eligible employees, each earning at least $75 000, the calculation would be as follows:

6 employees  X  $75 000 (maximum qualifying salary)  =  $450 000

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$450 000  X  24% (refundable tax credit)  =  $108 000

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Total credit after 20% deduction  =  $86 400

Advantages for foreign specialists employed by the IFC

An eligible foreign specialist may benefit from a deduction in the calculation of his or her taxable income for a period of five consecutive years.

The deduction applies only to the Québec income tax return and represents a percentage of the foreign specialist’s total taxable income equal to:

• 100% for the first two years;
• 75% for the third year;
• 50% for the fourth year;
• 37.5% for the fifth year.

To take advantage from the tax benefits, a corporation must obtain IFC 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 Minister of Finance.

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.