Provincial and territorial tax
Provincial and territorial tax
Quebec and Alberta administer their own corporation income tax systems. Corporations that earn income in these provinces have to file separate provincial corporation income tax returns.
All other provinces and territories legislate their corporation income tax provisions, but the CRA administers them. These provinces and territories do not charge income tax on the taxable income of corporations that are exempt from tax under section 149.
If the corporation has a permanent establishment in any province or territory other than Quebec or Alberta, you have to calculate provincial and/or territorial income taxes and credits, as well as federal income taxes and credits, on the return.
Note
Unless otherwise specified in the legislation, the credits
are considered government assistance and must be
included in income in the tax year they are received.
Reference
Paragraph 12(1)(x)
Permanent establishment
A permanent establishment in a province or territory is usually a fixed place of business of the corporation, which includes an office, branch, oil well, farm, timberland, factory, workshop, warehouse, or mine. Each corporate partner in a partnership has a permanent establishment where the partnership has a fixed place of business. If the corporation does not have a fixed place of business, the corporation's permanent establishment is the principal place in which the corporation's business is conducted.
Each member of a partnership has a permanent establishment in the province or territory where the partnership has a permanent establishment. This applies to both general and limited partners. For example, where a corporation or its partnership uses substantial machinery or equipment in a particular place at any time in a tax year, it is deemed to have a permanent establishment in that place. Review the locations in which your activities and transactions occur to ensure all permanent establishments are properly identified.
If the corporation carries on business, including partnership business, through an employee or an agent established in a particular place, it is considered to have a permanent establishment in that place if the employee or agent:
-
has general authority to contract for the corporation, or
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has a stock of merchandise owned by the corporation from which the employee or agent regularly fills orders received
A corporation that would not otherwise have any permanent establishment in a province or territory and/or a jurisdiction outside of Canada is deemed to have a permanent establishment at the place designated in its incorporation documents or bylaws as its head office or registered office. So, whether or not the corporation carries on a business in a province or territory, it is entitled to the 10% federal abatement, but subject to provincial or territorial taxation.
See Regulation 400(2) for a complete definition of permanent establishment.
References
Regulation 400(2)
IT-177, Permanent Establishment of a Corporation in a Province
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