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NEW FINANCIAL SERVICES CORPORATION

These tax measures were implemented by the Ministère des Finances to support entrepreneurship in the financial sector. More specifically, they aim to create new financial services corporations in Québec.

To benefit from these tax measures, corporations must hold the qualification certificate and annual certificates required under the Act respecting the sectoral parameters of certain fiscal measures (CQLR, chapter P-5.1) This link leads to the Publications du Québec website.. The certificate is valid for a maximum of five years.

AT ALL TIMES

The new corporation must meet certain criteria:

  • be operated by a corporation: partnerships, tax-exempt corporations and personal services businesses are not eligible
  • have a facility in Québec and operate a business 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 substantiallyThe expression “wholly or substantially” means 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

The new corporation must meet the following criteria:

  • the application must be submitted before the end of the corporation’s second taxation year
  • shareholders’ equity must be less than $15 million. 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

Two corporations are associated “Associated corporations” within the meaning of the Taxation Act (CQLR, chapter I-3) 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 of the 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 that 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.

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