Provincial Income Tax Traps

Businesses may be liable for Provincial income taxes... and not even know it. Click HERE for a discussion on Provincial sales tax traps.

Each Canadian province has legislation to apportion taxable income to their jurisdictions creating an income tax liability in that Province. Usually the requirement is for a business to have some "Permanent Establishment" in that province in order for those rules to be in effect. The definition of Permanent Establishment is different in each Province but usually involves having an office or permanent employee, an agent soliciting orders in that Province, or substantial machinery or equipment used in that Province. Some Provinces also have rules whereby if land is owned in that Province (regardless of use) there is a Permanent Establishment there. Businesses can have Permanent Establishments in more than one Province and therefore may be taxable in each of those Provinces. Due to the varied nature of the legislation in each Province, if it appears the business may have some significant presence in a province other than where it was incorporated, careful consideration must be made to establish whether or not Provincial income tax may be due in that Province.

Taxpayers need to be aware of these issues and ensure they perform due diligence. Consider consulting with a professional accountant. Contact Keith Anderson CA at (780) 447-5830 if you need advice. 

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