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Provincial Allocation Now Includes All Taxable Benefits 

Canadian Tax Adviser

 

April 16, 2013

 

Companies that allocate their taxable income to permanent establishments in more than one province may need to change their calculations for their 2013 taxation years. Under a new administrative position, all taxable benefits that are included in calculating an employee's income for the year, including deemed amounts such as stock option benefits, are included in salaries and wages paid in the year to employees for purposes of the provincial income allocation calculations in the Income Tax Regulations.

Background
A corporation that has a permanent establishment (PE) in more than one province must allocate its taxable income for the year between those provinces under the Income Tax Regulations (e.g., Regulation 402(3)). The taxable income is generally allocated to a province based on the proportion of the corporation's gross revenue for the year that is attributable to the PE in the province and the proportion of the corporation's salaries and wages paid in the year to employees of that PE.

 

Any double tax issues that arise when provincial tax authorities cannot agree on a corporation's income allocation are resolved by the Allocation Review Committee (ARC), which functions as a type of provincial "competent authority". The committee is comprised of senior people from the tax authorities of Alberta, Ontario, Quebec and the CRA on behalf of the provinces with which the CRA has tax collection agreements.

 

New position on non-deductible taxable benefits
Historically, the ARC has agreed that any taxable benefits that are not deductible in calculating the employer's income should be excluded from salaries and wages paid in the year for provincial income allocation purposes.

 

The CRA recently announced that ARC's position on this matter has changed. As such, the amount of salaries and wages paid in the year for the purpose of the provincial income allocation calculations will include all taxable benefits that are to be included in the employees' income in the year, effective for the 2013 taxation year. These taxable benefits include deemed amounts such as stock option benefits under section 7 of the Income Tax Act, regardless of whether these benefits are deductible in calculating the employer's income.

 

For more information, contact your KPMG adviser.

 

 

 

 

 

 

Information is current to April 16, 2013. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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