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

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Grant Gilmour

By Grant Gilmour

Grant Gilmour
Grant Gilmour
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 revenue 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 over all tax by exploring and considering expanding to provinces with lower tax rates for your business.

Recommendation:
If you would like to discuss your corporation’s Canadian permanent establishments for tax purposes, please contact Gilmour Knotts Chartered Accountants.

Grant Gilmour B.SC. MBA, CPA, CA is the International Tax Partner of Gilmour Knotts Chartered Accountant. To connect with Grant visit: www.gilmour.ca