Factoring Qualifying Activities

Receivables must be purchased without recourse

Factoring qualifies for favourable tax treatment as long as the receivables have been purchased outright from a non-resident and without recourse.

Collecting trade accounts receivable from non-resident for a non-resident affiliate or customer.

Case Study

  • A Parent Co sells its receivables to A Co (BC IBA Co) on a non-recourse basis.
  • A Co registers in the International Business Activity (IBA) program.
  • A Co carries on the business of collecting A Parent Co’s receivables. The income earned on collecting receivables from non-residents is eligible for a provincial tax refund. (In 2015, B.C.’s corporate tax rate is 11%.)

Illustration

Factoring Diagram

Analysis

  • A Co is eligible to apply for registration since it will be carrying on an “international business”.
  • A Co will be required to become a member of AdvantageBC in order to remain registered.
  • A Co’s business activities qualify as an international business because it is collecting trade accounts from non-resident persons which have been acquired on a non-recourse basis.

Did you know?

  • The IBA Program includes a personal income tax incentive for international employees.
  • You may be eligible for a refund of BC corporate tax on income from international business activities.
  • British Columbia is one of the top two designated financial centres in Canada.
  • Vancouver is among the top-10 wealth management centres in the world.
  • BC has some of the lowest corporate taxes in North America.