The test is a permanent establishment, not where your customers are
Provincial corporate income tax is tied to physical presence, defined in the federal regulations as a permanent establishment. The core meaning is a fixed place of business: an office, branch, factory, workshop, warehouse, mine or farm. If all of your fixed places are in Ontario, all of your taxable income is taxed in Ontario, no matter where your invoices go. There is no customer-count or revenue threshold that quietly makes you taxable in another province the way sales-tax rules can; for corporate income tax, presence is the whole game.
Every corporation also has at least one permanent establishment somewhere, by design. If you have no fixed place of business anywhere, the rules place one at the principal place where the business is conducted, and a head office named in your incorporating documents counts as one too. So the practical question is never whether you have a permanent establishment; it is whether you have picked up a second one, in a second province, without noticing.
The stakes are allocation, filings and rates, not double tax. A second permanent establishment means Schedule 5 splits your income between provinces and each taxes its slice at its own rates, which can work in your favour when the other province's rates are lower than Ontario's. It also means extra filings if the other province is Alberta or Quebec, which administer their own corporate tax. What it never means is the same dollar taxed by two provinces, as long as the returns are consistent.
What creates a permanent establishment, including the deemed ones
Beyond the obvious fixed places, the regulations deem a permanent establishment to exist in situations owners routinely miss. The ones that matter for owner-managed businesses:
- An employee or agent with general authority to contract. A salesperson living in Calgary who can bind your company to deals gives you an Alberta permanent establishment, office or no office.
- An employee or agent holding your inventory. Someone in a province with a stock of your merchandise who regularly fills orders from it creates one, which is where third-party fulfilment arrangements need a careful look at who is doing what for whom.
- Substantial machinery or equipment used in the province. Using substantial equipment in a province, even for part of the year, creates a permanent establishment there. This is the rule that catches construction companies, excavation and paving contractors, crane operators and drilling outfits on out-of-province jobs, with no office anywhere near the site.
- Land ownership. A corporation that has a permanent establishment in Canada and owns land in a province is treated as having one where the land is.
- Employee home offices, sometimes. A remote employee's home can amount to a fixed place of business in some fact patterns, particularly where the company requires or pays for the space, or the employee meets clients or holds stock there. It is a question of fact worth assessing deliberately when you hire senior people in other provinces, not a conclusion to assume either way.
The pattern across the deemed rules: they attach tax to where business capacity actually sits, contracting authority, inventory, heavy equipment, property, even when no sign hangs on a door. If your operations put any of those in another province with any regularity, assume the question is live and get it assessed.
What does not create one on its own
Just as important is the list that does not tip you over, because overreacting has costs too, in filings, provincial minimums and accounting fees that a correct reading avoids. Selling into a province, from ads to shipped orders, does not create a permanent establishment. Neither does sending employees on visits, sales calls, site inspections or short service trips, so long as no one place becomes a fixed base and nobody there holds contracting authority. Storing goods in an arm's-length third-party warehouse, where the operator is an independent business serving many customers, is generally not one either, in contrast to your own agent holding your stock. And a subcontractor in another province doing work you sold does not normally give you a permanent establishment, because their establishment is theirs.
| Usually creates a permanent establishment | Usually does not, on its own |
|---|---|
| An office, branch, shop, warehouse or yard you occupy in the province | Customers, revenue or shipped sales in the province |
| A resident employee or agent who can conclude contracts for you | Employees making visits, sales calls or short service trips |
| Your agent in the province filling orders from your stock | Inventory sitting with an independent third-party warehouse |
| Substantial machinery or equipment working on a job in the province | Small tools and vehicles passing through job sites |
| Land the corporation owns in the province | Work performed there entirely by an arm's-length subcontractor |
Real fact patterns sit between the columns, and the close calls tend to cluster around three words: fixed, authority and substantial. How long does a site presence run before it looks fixed? Does the person on the ground merely solicit, or can they commit you? Is the equipment on that job substantial for this rule? Those are judgment calls with filing consequences either way, and they deserve a documented position rather than a shrug, because the analysis you write down this year is the defence you hand an auditor three years from now.
What happens once you have one
A permanent establishment in a second province changes your filings, not your total income. Your single T2 gains Schedule 5, which allocates taxable income between the provinces using a two-factor formula, the average of each province's share of your gross revenue and its share of your salaries and wages. Each province then applies its own rates to its slice. The formula's mechanics, its worked arithmetic and its quirks, including what happens when revenue and payroll tell different stories, are covered in how corporate income is allocated between provinces.
If the second province is Alberta or Quebec, add a separate provincial corporate return administered by that province, filed consistently with the federal allocation. Consistency is the whole ballgame: when the percentages on a provincial return drift from Schedule 5, the same income can be taxed in two places until someone files corrections, and unwinding that costs more than getting it right did. Instalments may also need to be revisited, since provincial tax follows the allocation.
Timing matters more than owners expect, in both directions. A permanent establishment that existed for part of the year still pulls an allocation for that year, so the return in which an expansion, a big equipment job or a new branch first appears needs the analysis done before filing, not after a provincial questionnaire arrives. And when you wind a location down, the allocation should stop; we see companies still allocating income to a province years after the branch closed, paying a higher-rate province for nothing. Where filings were missed in past years, correcting them proactively, before a province writes first, is consistently cheaper, and it is routine CRA Support work: establish which years had an establishment, file or amend the allocations, and settle the interest arithmetic once.
Do not confuse this test with sales tax and payroll tests
A "no" on permanent establishment does not clear you in a province, because the other tax systems use different triggers. Sales tax follows customers: GST/HST place-of-supply rules set the rate you charge by where goods are delivered, within your single federal registration, and British Columbia, Saskatchewan and Manitoba can require PST registration from sellers with no physical presence at all once sales into the province grow. Payroll follows people: one employee whose province of employment is elsewhere changes withholding for that employee and can trigger employer levies and workers' compensation registration there, with no corporate tax consequence whatsoever. The reverse holds too: an equipment-driven permanent establishment on a three-month job can exist in a province where you never owe a dollar of PST.
This is why we run the tests as a set rather than answering the question that happened to arrive. The full sweep across corporate tax, sales tax, payroll and registrations is laid out in what a multi-province business should review for tax compliance, and keeping the answers current as your footprint moves is exactly the CRA support and corporate compliance work an Ontario CPA should have on a standing calendar for you, not something rebuilt from scratch each time a province asks.
What changes the answer for your business
Whether out-of-province work has put you on another province's corporate tax rolls comes down to a handful of facts:
- Whether anything fixed exists there: an office, yard, shop or warehouse you occupy, however modest
- What your people on the ground can do, because contracting authority in a resident employee or agent is a permanent establishment with no premises at all
- What equipment your jobs use, since substantial machinery on site is the deemed rule that catches trades and construction
- Who holds your inventory there, your own agent filling orders versus an independent warehouse
- How long and how regular the presence is, one three-week job reading differently from a crew that returns every month
- Which province it is, because Alberta or Quebec means a separate return and administration once the answer is yes
If two or more of those are in play, the question deserves a documented answer this year, filed consistently on every return it touches. A free 15-minute discovery call is enough to tell you whether you have a filing position to fix or nothing to worry about, and which one before a provincial auditor decides for you.
