In its 2012-2013 budget, the Québec government proposed
to introduce fiscal measures that will encourage the creation of
new financial services corporations ("FSC") via two new
refundable tax credits on eligible expenditures and on salaries
paid to eligible employees. These proposed incentives would
supplement existing tax incentives, including, in particular, the
refundable tax credit for international financial centres
("IFC"). The existing IFC regime was first introduced to
encourage the development and maintenance of businesses
specializing in certain "cross border" financial
transactions conducted in the urban agglomeration of
Montréal. The proposed FSC measures will provide incentives
for new corporations operating anywhere in Québec and
participating in a much wider range of financial activities.
The proposed measures target new corporations (partnerships and
other unincorporated entities are not eligible) with less than $15
million in net shareholders' equity and having an establishment
and carrying on business in the province of Québec. Eligible
activities include the provision of various analysis, research,
management, advisory and securities trading or distribution
services through a securities dealer, or securities advisory or
management services through a securities advisor. Qualifying
corporations will be entitled to claim refundable tax credits for a
period of five years following the initial qualification date and
will be subject to annual eligibility certification.
The proposed measures are comprised of two refundable tax credits:
one for eligible expenditures and one for eligible salaries.
Eligible FSCs will be able to claim a refundable tax credit equal
to 40% of eligible expenditures, up to an annual maximum of
$150,000. Eligible expenditures include fees and expenses relating
to the constitution of an initial regulatory file submitted to a
regulatory body, participation in a stock exchange or a
subscription for financial analysis or research services, and fees
and dues otherwise paid to a recognized regulatory body.
Eligible FSCs will also be entitled to claim a second refundable
tax credit equal to 30% of eligible salaries, up to an annual
maximum of $30,000 per eligible employee. Eligible employees are
those working full-time (at least 26 hours per week for a 40 week
period) and for whom at least 75% of their duties are directly
attributable to qualifying activities. Eligible salaries are
reduced by the amounts received as governmental or non-governmental
It is noteworthy that the rules in the tax legislation designed to
prevent the aggregation of tax assistance on the same expenditure
could apply to the proposed FSC credits. In such a case, the
expense eligible for an FSC credit would exclude that portion of
the expense for which the corporation has already claimed a tax
credit, such as, for example, the IFC credit. No guidance in this
respect was provided in the budget.
Moreover, as is the case for the IFC regime, the proposed FSC
measures will provide a 5-year declining tax holiday for foreign
specialists working exclusively for an eligible corporation. In its
current form, the tax holiday is comparable to that for an IFC
foreign specialist1 except that the deduction for the
fifth year is reduced to 25% (as opposed to 37.5%) for FSC foreign
As mentioned above, the proposed FSC measures will have a broader
scope than the existing IFC regime and will provide significant tax
benefits for new corporations operating in the financial services
sector in Québec. With tax credits for both salaries and
expenditures, the FSC measures will provide much welcomed tax
relief for new corporations seeking to establish themselves in an
already competitive market.
1 100% for the first and second years and 75%, 50% and
37.5% for the third, fourth and fifth years
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).