International Financial Business
Budget 2017 Update proposes to eliminate the International Business Activity program effective September 12, 2017.
An international financial business is a:
- qualifying financial business of a corporation other than a foreign bank
- Canadian banking business of a corporation that is a foreign bank
An international financial business must be carried on by a corporation or foreign bank authorized to carry on business in Canada through a fixed place of business in B.C. where all of the activities are international financial activities.
To be a qualifying financial business, a corporation must meet one of the following three criteria establishing a substantial B.C. presence:
- the corporation carries on an active business,
Note: active business has the same meaning as under section 248(1) of the Income Tax Act (Canada) (federal Act),
- the corporation carries on a separate business within a corporation that carries on an active business where that separate business earns income principally from property (such as treasury activities), other than from property used in or incident to the active business, or
- the corporation is affiliated with another corporation that carries on an active business, the corporation pays at least $300,000 in annual salary and wages to employees employed in the active conduct of the corporation’s qualifying financial business and the corporation has capital employed in B.C. of at least $10 million.
Note: capital employed in B.C. means an amount equal to the total capital stock of the corporation multiplied by the corporation’s B.C. taxable income for the year divided by the corporation's federal taxable income for the year.
Effective March 3, 2010, qualifying financial business replaced the term qualifying business; the meaning has not changed, only the name of the term has changed.
Business has the same meaning as under section 248(1) of the federal Act, except it does not include an adventure or concern in the nature of trade.
To qualify as a Canadian banking business for the International Business Activity (IBA) program, a foreign bank must:
- Have an order under subsection 524(1) of the Bank Act (Canada) permitting the foreign bank to establish a branch in Canada to carry on business in Canada, and
- Carry on business through a permanent establishment in B.C.
For the purpose of a Canadian banking business in the IBA program, a foreign bank has the same meaning as in section 2 of the Bank Act (Canada).
To qualify as an international financial business, all the activities of the business must be international financial activities.
The following activities qualify as international financial activities of a qualifying financial business and a Canadian banking business if carried out for or with a non-resident, and may be done on either an arm’s length, non-arm’s length or affiliated basis, unless otherwise noted. Arm’s length, affiliated, and related persons have the same meaning as in the federal Act.
A foreign bank can't provide qualifying international financial activities to the foreign bank of which it is a branch.
- Accepting or making deposits in any currency as principal in a debtor-creditor relationship.
- Making loans or borrowing in any currency as principal in a debtor-creditor relationship on an arm’s length basis only.
- Guaranteeing the payment of a debt, if all of the debtors or all of the creditors of the debt are non-residents.
- Dealing in short term debt securities (excluding derivatives) as principal by a non-securities corporation. For the purpose of this activity, debt securities and derivatives have the same meaning as in the Canadian Institute of Chartered Accountants Handbook, as it read on February 19, 2008. Short term debt securities include treasury bills issued by a government, commercial paper and bankers’ acceptances.
- Dealing in securities (including derivatives) as agent for a non-resident of Canada.
- Providing financial advice, other than legal, accounting or tax advice. Legal, accounting or tax advice that can reasonably be considered ancillary and incidental to the financial advice is allowed.
- Insuring risks, other than life, sickness or accident insurance, on an arm’s length basis only, of or relating to non-resident persons and relating to property or events outside Canada. Captive insurance companies are exempted from the arm’s length requirement.
- Managing, for a fee or commission, foreign exchange activities.
- Managing, for a fee or commission, investments.
- Managing for residents, for a fee or commission, investments in securities issued by a non-resident that are not listed on a Canadian stock exchange.
- Preparing stock market or other financial research for the exclusive use of non-residents, other than legal, accounting or tax research. Legal, accounting or tax research that can reasonably be considered ancillary and incidental to the financial research is allowed.
- Factoring, which is collecting trade accounts receivable where the accounts are receivable from a non-resident and have been purchased from a resident or non-resident without recourse.
- Collecting, for a fee or commission, trade account receivables from non-resident persons.
- Leasing property, by means of a direct financing lease as defined in the Canadian Institute of Chartered Accountants Handbook.
- Providing administrative support services directly related to a financial activity of a non-resident financial business. Call centres, marketing and advertising are excluded by regulation. An internal support function, such as a computer help-desk providing direct services to non-resident employees is not considered a call centre but an administrative support service.
- Providing back-up office services, which are providing services, equipment and premises to continue the business operations of the non-resident in the event their primary equipment or premises become temporarily unusable.
The following activities are limited to savings institutions unless otherwise noted.
- Handling import and export letters of credit at arm’s length, including documentary and standby letters of credit and documentary collections, where not more than one party to the underlying transaction is a resident of Canada.
- Dealing in securities (including derivatives), as principal, with a non-resident if the corporation is either a savings institution or other corporation registered under the Securities Act as a dealer or underwriter (other than capital stock of the corporation or its affiliates).
- Dealing in securities (including derivatives), that are not listed on a Canadian stock exchange as agent of a resident, with a non-resident if the corporation is either a savings institution or other corporation registered under the Securities Act as a dealer or underwriter (other than capital stock of the corporation or its affiliates).
- Dealing in foreign exchange, where the corporation’s primary business is dealing in foreign exchange on an arm’s length basis only.
- Acting for a fee or commission exclusively for non-resident persons:
- as trustee of a trust that, at all relevant times, is non-resident,
- as an executor or administrator of the estate of a non-resident person, all the beneficiaries of which are at all relevant times non-residents,
- as guardian of the estate of a minor who is non-resident, and
- as committee of the estate of a mentally incompetent person who is non-resident.
The following activities are limited to savings institutions or corporations affiliated with savings institutions:
- providing services in respect of the Immigration and Refugee Protection Act (Canada), and
- providing services in respect of that person seeking leave to enter, extend stay or remain indefinitely in the United Kingdom as an investor.
A savings institution is defined in the Interpretation Act and means:
- a bank, including a foreign bank authorized to carry on business in Canada,
- a credit union,
- an extra-provincial trust corporation authorized to carry on deposit business under the Financial Institutions Act,
- a corporation that is a subsidiary of a bank and is a loan company to which the Trust and Loan Companies Act (Canada) applies, and
- the B.C. Community Financial Services Corporation established under the Community Financial Services Act.
Learn about registering for the IBA program.