Provincial Income Allocation Calculator
A yard, a crew or a driver in another province creates a permanent establishment there, and the corporation’s taxable income has to be split between provinces on Schedule 5. Work out the allocation percentage, the tax in each province, and what filing 100% Ontario has been costing or saving.
difference in provincial tax
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The Schedule 5 Allocation
| Province | Revenue or Kilometres Share | Payroll Share | Allocation Percentage | Taxable Income Allocated |
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Tax by Province
| Province | Small Business Income | General Income | Rates Applied | Provincial Tax |
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What Each Province Now Requires
| Province | Corporate Return | Extra-Provincial Registration | Payroll and Workers Compensation |
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Points That Decide This
What to Do Next
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Disclaimer: Regulation 400(2) defines a permanent establishment as a fixed place of business, including an office, branch, mine, oil well, farm, timberland, factory, workshop or warehouse, and deems one to exist where an employee or agent has general authority to contract, or has a stock of merchandise from which orders are regularly filled, or where the corporation uses substantial machinery or equipment in a place at any time in a taxation year. Regulation 402 allocates taxable income to a province as the average of the proportion of gross revenue attributable to the permanent establishments in that province and the proportion of salaries and wages paid to employees of those establishments. Regulation 402(6) and 402(7) apply the surviving limb alone where a corporation has no salaries or no gross revenue. Regulation 412 replaces the gross revenue limb with kilometres driven in the province for corporations whose principal business is bus or truck transport. The federal abatement under subsection 124(1) is 10% of taxable income earned in a province, so the federal liability does not change with the split between provinces. Provincial rates used are those the calculator was built with and should be confirmed against the current rate for the taxation year before filing; Alberta and Quebec administer their own corporate tax and require a separate AT1 or CO-17 return. This page is general information, not tax advice.
The Trigger Is a Permanent Establishment, Not a Customer
Selling into another province changes nothing. Having a fixed place of business there changes everything. Regulation 400(2) lists the obvious cases, an office, a branch, a factory, a workshop, a warehouse, and then adds three deeming rules that catch far more businesses than the list does.
- An employee or agent with general authority to contract on the corporation’s behalf creates a permanent establishment in the place where that person works.
- An employee or agent holding a stock of merchandise from which orders are regularly filled creates one at that location.
- Substantial machinery or equipment used in a place at any time in the year creates one, with no requirement that anybody be stationed there.
The equipment rule is the one that catches construction and hauling businesses. An excavator on a site in Manitoba for a season, or a crane parked at a client’s yard, is substantial machinery used in a place. No lease, no office and no local hire is needed, and the corporation has a Manitoba permanent establishment for the whole taxation year.
The Formula Is an Average of Two Fractions
Regulation 402 allocates taxable income to each province as the average of two proportions: gross revenue reasonably attributable to the permanent establishments in that province over total gross revenue, and salaries and wages paid to employees of those establishments over total salaries and wages. Each province gets half the revenue share plus half the payroll share.
| A Corporation with $400,000 of Taxable Income | Ontario | Alberta |
|---|---|---|
| Gross revenue | $1,800,000 | $1,200,000 |
| Revenue share | 60.0% | 40.0% |
| Salaries and wages | $700,000 | $500,000 |
| Payroll share | 58.3% | 41.7% |
| Allocation, the average of the two | 59.2% | 40.8% |
| Taxable income allocated | $236,667 | $163,333 |
Two edge cases have their own rules. Where the corporation paid no salaries at all, Regulation 402(7) allocates on gross revenue alone. Where it had no gross revenue, Regulation 402(6) allocates on salaries alone. A holding corporation with neither generally has no allocation issue in the first place.
Carriers Use Kilometres Instead of Revenue
A corporation whose principal business is transporting goods or passengers by bus or truck falls under Regulation 412, which replaces the gross revenue limb with kilometres driven in each province. The payroll limb is unchanged, so the allocation is half the kilometre share plus half the payroll share.
This matters more than it sounds. A carrier based in Ontario running long-haul into Alberta typically drives far more kilometres in the west than its Ontario revenue attribution would suggest, and the correct allocation pushes more income to the lower-rate province. The records that support it are the trip sheets and the IFTA filings, which most carriers already produce for fuel tax and have never used for income tax.
The IFTA quarterly returns already contain the distance by jurisdiction. A carrier that files IFTA but allocates all of its income to one province is contradicting its own records, and those records are exactly what an auditor will ask for.
The Rate Spread Is Where the Money Is
The federal side does not change. The abatement under subsection 124(1) is ten per cent of taxable income earned in a province, whichever province that is, so moving income between provinces leaves the federal liability alone. What moves is the provincial rate applied to each slice.
| Province | Small Business Rate | General Rate | Who Administers |
|---|---|---|---|
| Alberta | 2.0% | 8.0% | Alberta, separate AT1 |
| British Columbia | 2.0% | 12.0% | CRA |
| Ontario | 3.2% | 11.5% | CRA |
| Quebec | 3.2% | 11.5% | Revenu Quebec, separate CO-17 |
| Saskatchewan | 1.0% | 12.0% | CRA |
| Manitoba | 0.0% | 12.0% | CRA |
| Nova Scotia | 2.5% | 14.0% | CRA |
| New Brunswick | 2.5% | 14.0% | CRA |
Confirm the rate for the taxation year before you file. Provincial rates and business limits move, Saskatchewan uses a $600,000 business limit rather than $500,000, and several provinces have phased changes with mid-year effective dates that require a pro-rated calculation.
Allocation Is Not Optional and It Cuts Both Ways
Corporations discover this in two directions. An Ontario company with Alberta operations that has been filing everything in Ontario has been overpaying, and can usually recover it by amending open years. An Alberta company with Ontario crews that has been filing everything in Alberta has been underpaying, and owes Ontario tax plus interest.
Neither is a choice. Schedule 5 is mandatory once there is a permanent establishment in more than one jurisdiction, and the formula is mechanical. The judgement sits in the inputs, in which locations qualify as permanent establishments and how revenue is attributed among them, not in whether to allocate.
The Return Is Only Part of What Gets Triggered
A permanent establishment in a province usually brings a set of obligations that have nothing to do with the T2.
- Extra-provincial registration with the provincial corporate registry, which is separate from incorporation and carries its own fee and annual return
- A separate corporate return in Alberta and Quebec, which administer their own corporate tax rather than leaving it to the CRA
- Workers compensation registration in each province where workers are located, which is almost always the first one to be noticed
- Provincial payroll levies where the payroll in that province exceeds the threshold, such as the British Columbia employer health tax or the Manitoba health and post-secondary education tax
- Provincial sales tax registration in British Columbia, Saskatchewan, Manitoba and Quebec, which follows its own nexus rules and not the income tax ones
What This Calculator Does Not Cover
- Whether each location is actually a permanent establishment, which is the judgement the whole calculation rests on
- The attribution rules in Regulation 402(4), which govern which establishment a particular sale belongs to
- Airlines, railways, ships, grain elevators, banks and insurers, which have their own allocation regulations
- Provincial tax credits, which are claimed against the tax of the province that offers them
- Territories, and provinces beyond the three modelled here
- Amending prior years, where the recovery or the exposure usually turns out to be larger than the current year
If the corporation has been filing 100% in one province for several years, the current year is the smaller half of the problem. Our corporate tax return filing service covers the permanent establishment review, the Schedule 5 allocation, the amended years and the provincial registrations that follow.
Frequently Asked Questions
Common questions on allocating corporate income between provinces.
Related Calculators and Guides
More tools for corporations operating in more than one province.
Get the Allocation Right, and Fix the Years Behind It
Send us the payroll register by location, the revenue by establishment and the IFTA returns if you run trucks. We will test which locations are permanent establishments, prepare Schedule 5, quantify the open years and handle the provincial registrations that come with it.