How is Multi-jurisdictional Income Tax in Canada Calculated? – By Dawn Loeffler

Tax Question:

How is corporate tax calculated if my company has income in more than one province in Canada?

Facts:

If your company is a Canadian taxpayer, Canadian corporate tax is calculated by allocating taxable income between the provinces in which your company has a permanent establishment presence.

Discussion:

The company is considered to have a permanent establishment presence in any Canadian province where any of the following conditions are met:

• A fixed place of business such as an office, branch, warehouse, workshop or factory in the province.
• An agent or an employee present in the province.
• The company owns land in the province.
• There is substantial use of machinery or equipment by the company in the province.

Taxable income is allocated between Canadian provinces with a permanent establishment presence on the basis of gross revenues produced in each province and salaries and wages paid out in each province in the following manner:

• Each province’s gross revenues are calculated as a percentage of total gross revenue for the company.
• Each province’s salaries and wages are calculated as a percentage of total salaries and wages for the company.
• An average of these two percentages is then applied to the corporate taxable income to determine the amount of taxable income attributed to that province.

If you are looking to expand your business into Canada for the first time or into additional provinces in Canada, there may be an opportunity to reduce overall tax by exploring and considering expanding to provinces with lower tax rates for your business.

Dawn Loeffler, BA (Hons), CPA, CA
Manager, Gilmour Group CPA’s
Email: faqs@gilmour.ca
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