Federal vs Provincial Incorporation and Extra-Provincial Rules

Federal vs provincial incorporation: what is the difference?

Both routes create a corporation under the same income tax rules; the difference is which corporate law governs it and where it must register. A federal corporation's approved name is protected across Canada, and its head office, records and meetings can be in any province or territory (Canada.ca). Federal incorporation does not replace provincial registration: a federal corporation registers in each province where it conducts business, including its home province (Corporations Canada). Registering in a province other than the one whose law created the corporation is called extra-provincial registration; a federal corporation does it even at home.

Which route fits depends on where the business works, its name, and where its directors live:

The choice stops being simple when the corporation will work in more than one province, when a federal corporation has operated at home without registering, when no director lives in Canada, or when the business may move. Gather:

• where you, any staff, and any office, address or phone number are;
• where your clients are, and whether you advertise or solicit work there;
• where each director lives;
• the name you want, and where it must be protected;
• the date work started in each province.

If I incorporate federally, must I still register in my own province?

Yes. Corporations Canada says provincial and territorial law requires a federal corporation to register in each province and territory where it conducts business, and most charge a fee for it (Corporations Canada). The route depends on the province:

• Ontario, Nova Scotia, and Newfoundland and Labrador: the provincial forms are filled from the information given during federal incorporation, for business corporations only. Corporations Canada says to confirm with the province that the registration went through.
• Alberta, British Columbia, Manitoba, Saskatchewan and Quebec: a partnered registration starts on Corporations Canada's site. It is still that province's registration, with that province's fee.
• Other provinces and territories: register directly with that registry.

What counts as "carrying on business" in a province?

Each province defines it in its own law, and the tests reach well past having an office. Corporations Canada says it typically includes having an address, a post office box or a phone number in the province, or offering services or products there (Corporations Canada). Selling online or serving clients in another province can count; because each province sets its own test, check each one where you advertise, solicit work, ship goods or have someone working.

Alberta is the clearest worked case. Its Business Corporations Act treats any corporation not incorporated under an Alberta law, federal corporations included, as extra-provincial. Section 277 says such a corporation carries on business in Alberta if it:

• is listed in a telephone directory for any part of Alberta;
• appears in an advertisement that gives an Alberta address for it;
• has a resident agent or representative, or a warehouse, office or place of business, in Alberta;
• solicits business in Alberta;
• owns an estate or interest in Alberta land;
• is licensed or registered, or required to be, under an Alberta law that lets it do business; or
• otherwise carries on business in Alberta.

British Columbia's test in section 375 is similar: a directory listing or advertisement with a BC address or phone number, a resident agent, or a warehouse, office or place of business in BC. Registration is a corporate-law test, separate from income tax. Soliciting Alberta clients can require Alberta registration without giving the corporation an Alberta permanent establishment; see operating in more than one province.

Federal or provincial: what does each cost at the start and every year?

In Ontario the federal route costs less to start ($200 against $300) and adds a federal annual return each year. In BC it costs more ($200 plus a $350 registration statement, against $350 and any name request), and the federal annual return comes on top of the BC annual report. Government fees only; a lawyer or filing service adds its own.

Sources: Ontario fees, BC, Corporations Canada. A federal online filing with a word name needs no separate NUANS report. The federal annual return is due within 60 days after each anniversary and is separate from the T2. For Alberta, Quebec and name-search costs, see what it costs to incorporate; for every province's annual deadline, see corporate annual returns.

Who can be a director?

A federal corporation needs at least 25% of its directors to be resident Canadians, and at least one if it has fewer than four directors; some federally regulated sectors with Canadian-ownership rules need a majority (CBCA, section 105). Ontario repealed its director residency rule, Alberta's Act has repealed its own (section 105(3)), and the BC registry says BC's Act eliminated all residency requirements for directors. Who counts as a resident Canadian, and what founders abroad can do: incorporating as a newcomer or non-resident.

Is it better to incorporate federally, or in a low-tax province, for tax?

No route lowers tax by itself. The CRA asks each corporation to name, on line 750 of the T2, the province or territory where it earned its income, and says this is usually where it has its permanent establishment: a fixed place of business such as an office, branch or warehouse (CRA). A federal charter or an Alberta registered office does not move income earned through an Ontario office. A corporation with no fixed place of business has its permanent establishment where it mainly does business; the head or registered office in its incorporation documents decides only when it has no permanent establishment in any province, territory or other country. How income is split across provinces: operating in more than one province.

Extra-provincial registration: what do I file in a second province, and by when?

Register under the new province's law by its deadline; federal and provincial corporations follow the same steps.

Yearly filings in the new province start once registered. In Quebec, the annual registration fee of $106 is not charged in the year after the year of registration (fee schedule). If the corporation also has a permanent establishment there, it splits taxable income on Schedule 5 and may file a provincial return; see operating in more than one province.

What if a federal corporation never registered (penalties in Alberta, BC, Ontario and Quebec)?

The corporation still exists, but the province's law can fine it, and in Ontario and Quebec also directors who took part. Alberta bars it from suing in Alberta courts on contracts made while unregistered until it registers, and Quebec can suspend its right to sue. What each law says:

Late registration is filed with that province's registry, with the date activity began there. In Alberta it lets a court action on those contracts proceed (section 295); the Alberta and BC Acts do not say it cancels a fine already incurred. Whether past T2 allocations, payroll or sales tax used the wrong province: see operating in more than one province.

Can I switch from provincial to federal, or back, later?

Yes, by continuance: the same corporation moves under another jurisdiction's corporate law without dissolving. A federal corporation can apply to continue elsewhere once its shareholders approve by special resolution (two-thirds of the votes cast) and it satisfies the federal Director that creditors and shareholders will not be adversely affected (CBCA, section 188). A provincial corporation can continue federally if its home law authorizes it (section 187).

Sources: Ontario fees; Corporations Canada. Continuance differs from extra-provincial registration, which lets a corporation operate in another province without changing its governing law. Neither one moves taxable income; permanent establishments do.

Example

Illustrative figures in Canadian dollars, government fees only.

A Toronto consultant who works only in Ontario

Provincial route: C$300 to incorporate in Ontario, then one Ontario annual return each year with no fee. Federal route: C$200, with the Ontario registration filed through the incorporation forms (confirmed with Ontario afterward), then a C$12 federal annual return each year and Ontario's record kept current. The federal route costs less at the start here, but it needs a resident Canadian director and adds a second registry to keep current.

A federal corporation run from Calgary

The corporation incorporates federally for C$200 and starts work in Calgary on March 1. It registers in Alberta by March 31, through the partnered start on Corporations Canada's site or an Alberta service provider, with no NUANS report because it is a federal corporation. It pays Alberta's C$291.75 government fee, plus a service charge if it files through an Alberta service provider. Each year after, it files a federal annual return (C$12) and an Alberta annual return (C$53.05 government fee, plus any service charge).

A BC company opens an office in Montreal

• Year 1: the office opens in May. The company files a Quebec declaration of registration (C$397) within 60 days; its Montreal address means it needs no mandatary.
• Year 2: it files the annual updating declaration; no annual registration fee is charged in the year after registration.
• Year 3 onward: annual updating declaration plus the annual registration fee (C$106 at the current rate).

From year 1, with offices in both provinces, its T2 splits taxable income between BC and Quebec on Schedule 5, and it files a Quebec return too.

Different for you?

• Your corporation works, or will work, in two or more provinces: registration and income allocation both change; see operating in more than one province and get business formation help.
• A federal corporation never registered at home, or missed a registration elsewhere: gather the dates work began in each province and get business formation help; past T2 allocations may need corporate tax help.
• No director lives in Canada: federal incorporation needs a resident Canadian director; see incorporating as a newcomer or non-resident and get business formation help to choose where to incorporate.
• You are still deciding whether to incorporate at all: see sole proprietorship or corporation.
• You are ready to file: follow how to incorporate in Canada, or the Ontario, British Columbia, Alberta or Quebec steps.
• You want every fee in one table: see what it costs to incorporate.
• You missed annual returns or got a dissolution notice: see corporate annual returns and reviving a dissolved corporation.