Working in Another Province: Registration and Income Tax

Does incorporating in Alberta lower tax if I work in Ontario?

Incorporating in Alberta does not, by itself, shift an operating corporation's taxable income there. A corporation with an Ontario permanent establishment and no establishment elsewhere generally allocates all its taxable income to Ontario, even if its registered office is in Alberta. With establishments in both provinces, it allocates income between them under the CRA's provincial allocation rules.

The incorporation address can matter if a corporation has no permanent establishment anywhere else: the Income Tax Regulations deem one at the head or registered office named in its documents. That fallback does not turn a registered address into an Alberta share of income when the business actually has an Ontario establishment. If you are deciding whether to incorporate at all, see sole proprietorship or corporation.

What creates a permanent establishment in another province?

For corporate income allocation, a permanent establishment is usually a fixed place where the corporation carries on business. An office, workshop or warehouse can qualify; a worker or agent established in a place can also create one in the circumstances set out below. The result depends on what happens at the location, not the label on an address or employment contract (Income Tax Regulations, section 400; CRA).

The regulation also deems an establishment where a corporation uses substantial machinery or equipment, and in some cases where it owns land. A remote worker's home is not automatically a fixed place of the corporation. Review whether the corporation actually has that place at its disposal and whether the worker has the contracting or inventory role described in the regulation. Keep the lease, work arrangements, authority to sign, inventory records and dates.

Do customers in another province make my income taxable there?

Customers in another province do not, by themselves, create a corporate permanent establishment there. If a corporation has no establishment in that province, the allocation rules generally assign no taxable income to it. Where the corporation does have establishments in multiple provinces, customer destinations or the place services are performed can affect which establishment receives the revenue. For services performed where it has no establishment, CRA attributes revenue to the establishment to which the person negotiating the contract is reasonably attached.

Corporate registration can reach further. Alberta, for example, lists soliciting business in Alberta among the activities that count as carrying on business there. Check registration separately from income tax. For sales tax, see provincial sales tax; for a wrong GST/HST rate on an invoice, see correcting the rate.

How does a corporation split income on Schedule 5?

A corporation with permanent establishments in more than one province or territory completes Part 1 of Schedule 5 with its T2, even if it has no taxable income. With no taxable income, it completes only columns A, B and D. The ordinary allocation gives equal weight to each province's share of gross revenue and its share of salaries and wages, then applies the combined share to the corporation's taxable income (2026 Schedule 5; CRA folio, paragraphs 2.15–2.18).

Reconcile gross revenue to the Schedule 5 rules: it can differ from financial-statement revenue. Bank interest can count, while bond interest, share dividends, and unrelated rent or royalties are excluded. If gross revenue is nil, use the wage factor; if salaries and wages are nil after the deemed-salary rule, use the revenue factor. Staff paid by a related employer may also count in the corporation's wage factor when section 402.1's conditions apply. Special industry rules can replace the ordinary formula. A corporation with a Quebec or Alberta establishment still reports the allocation on Schedule 5 and generally files a separate Quebec CO-17 or Alberta AT1. The T2, CO-17 and AT1 are due within six months after year-end; see filing a corporate return for payment dates and exceptions.

What if my corporation moved or kept offices in both provinces?

List every province where the corporation had a permanent establishment at any time in the tax year. If it closed its Ontario office and then opened one in Alberta, Schedule 5 still lists both provinces; the offices need not be open at the same time. Allocate the year's taxable income using the revenue and wage factors. Keeping the old office also leaves establishments in both provinces.

Preserve the dates each office opened and closed, when staff changed locations, where services were done, where goods were shipped and who negotiated sales. Those records support both the establishment decision and the revenue and wage allocation. An address change in corporate records alone does not establish when operations moved.

How do sole proprietors and partnerships handle provincial tax?

An individual's province of residence at year-end generally determines provincial tax. Under the CRA's latest published instructions, a sole proprietor or partner with business income allocated to an establishment outside that province uses Form T2203 instead of Form 428; Quebec residents use T2203 to calculate tax outside Quebec. A Quebec resident with business outside Quebec also files a Quebec return with form TP-22; a resident elsewhere with business in Quebec may need a Quebec return with form TP-25. A proprietor who moved from Ontario to Alberta should check whether income earned through an Ontario establishment during the year belongs on T2203, even if that office later closed. If residence is uncertain, the CRA's residence folio looks at significant residential ties.

A partnership's business locations also matter to a corporate partner: each corporate partner is treated as having an establishment where the partnership has one and includes its proportionate share of partnership revenue and wages in its own Schedule 5 (CRA: Schedule 5). The partnership location, the partner's entity type and the individual's residence should be checked separately.

The proprietor owes their own business income tax and, as an employer, must withhold and remit payroll tax under Income Tax Act section 153. Individual partners pay tax on their shares under section 96. General partners can also owe partnership debts personally: Ontario's Partnership Act, section 10, for example, makes them jointly liable for obligations incurred while they were partners.

Which province's payroll deductions apply to a remote worker?

For a Canadian-resident employee, payroll deductions generally use the province of employment, not automatically the worker's home province or the corporation's income-tax establishment. The CRA's province-of-employment guide applies a separate employer-establishment test.

The CRA says a full-time remote attachment cannot be chosen just to avoid deductions or contributions. If the payroll province differs from the employee's residence, withholding may be too high or low compared with the employee's eventual tax. For Quebec workers or detailed remittances, see running payroll and doing business in Quebec from another province.

If a corporation fails to withhold or remit payroll income tax, its directors at the time can be personally liable for the amount, interest and penalties under Income Tax Act section 227.1, subject to statutory recovery and due-diligence conditions. Recovery proceedings against a director must begin within two years after the director last ceased office.

When must a corporation register in another province?

An out-of-province corporation may need to register where it carries on business under that province's corporate law, even without a permanent establishment for income tax. A federal corporation also registers in provinces where provincial law requires it; federal incorporation is not a nationwide registration (Corporations Canada).

Alberta's registration page says a corporation formed elsewhere must register to do business there and lists solicitation, a resident representative, warehouse, office or place of business, and land ownership among its triggers. An Ontario corporation soliciting Alberta contracts can meet that test without an Alberta office. If covered by Alberta's Business Corporations Act, section 279, it must register before or within 30 days after it starts carrying on business there. These are Alberta rules, not a national test. Check the destination province's registry before starting activity. Some provincial forms can be prepared during federal incorporation; confirm the registry accepted the registration.

Is extra-provincial registration enough to move the corporation?

Extra-provincial registration lets the existing corporation operate in the destination province; it does not change the law under which that corporation was formed. Alberta's registry describes registration of a corporation formed elsewhere, while its forms page lists separate steps for continuance into Alberta.

If the goal is simply to open an Alberta office, assess Alberta registration and taxes. If the goal is to change the corporation's incorporating jurisdiction, assess continuance under both the current and destination corporate laws. Neither step alone changes where an operating business has permanent establishments for income allocation (CRA folio).

What if I operated before registering or allocated income incorrectly?

Reconstruct the facts first: when each province's activities began, where offices and workers were, who could sign contracts, where inventory was held, and how revenue and wages were assigned. Then compare the corporate registry history, T2 line 750 and Schedule 5, payroll setup, and provincial filings for each affected year. The CRA's permanent-establishment guidance requires reporting all establishments and using line 750 even if no tax is payable.

Contact the relevant provincial registry about a late registration. For an assessed T2 with an incorrect allocation, the CRA permits a corporation to request a reassessment; a reassessment can change tax, interest or penalties. Check any separate provincial return and payroll correction as its own task. Multiple affected years or provinces merit corporate tax help before filing inconsistent corrections.

Example

Illustrative Canadian dollars. An Ontario corporation opens a staffed Alberta office during the year and keeps its Ontario office. Assume both are permanent establishments for the whole period illustrated, ordinary allocation rules apply, and all revenue and wages can be attributed to one of the two offices. It has C$200,000 of taxable income, C$1,000,000 of gross revenue and C$400,000 of salaries and wages. Ontario accounts for C$600,000 of revenue and C$200,000 of wages; Alberta accounts for C$400,000 of revenue and C$200,000 of wages.

Ontario's revenue share is 60% and its wage share is 50%, so Schedule 5 allocates their average, 55%, or C$110,000 of taxable income to Ontario. Alberta's shares are 40% and 50%, averaging 45%, or C$90,000. The company checks Alberta extra-provincial registration separately. If it instead had only Alberta customers but no Alberta establishment, those customers alone would not create an Alberta share of corporate taxable income; Alberta's registration test could still need review.

Different for you?

• You need the T2 or a separate Quebec or Alberta return: see filing your corporate return.
• You have Quebec customers or workers: review Quebec sales tax and payroll obligations.
• You may need a provincial sales tax account: see provincial sales tax.
• You need to calculate and remit payroll deductions: see running payroll.
• You charged the wrong GST/HST rate: see correcting GST/HST invoices and returns.
• You operated in multiple provinces without registering or allocating income: gather the office, staff, contract, inventory, revenue, wage and filing records by year and seek corporate tax help.