Client of mine has an ONTARIO corporation and registered to do business in Alberta and registered with Alberta. The corporation has ONE rental property which is owned by the corp and the rental property is in alberta. no other business or income or expenses in the corp other then the rental income in Alberta. can the Corp file as an alberta tax rate?
Fill out S5, and remember that you have to file a separate provincial tax return for Alberta, which means the corporation must get an Alberta Corporate Account Number.
Note the definition of permanent establishment per ITA 400(2) - you might not HAVE TO allocate the income to Alberta, depending on where the corporation is based, etc.
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But he want to declare it in Alberta. Less taxes to pay.
PE applies as the rental property is in Alberta?
That’s what S5 is for. Or is he moving the corporate head office to Alberta? Then, just fill out the T2 with the new corporate office address in Alberta. Either way, you have to file TWO tax returns - a T2 (federal return), and an AT1 (Alberta provincial return, which requires the Alberta Corp number).
What is “PE”?
It’s an Ontario corporation with a Ontario mailing address.
However the rental property is in Alberta can they file a t5 shechdule showing 100 percent of the income earned on Alberta to pay the lower tax rate compared to Ontario?
No not moving the corporation to a Alberta corp however its it’s Ontario corp with inter province with alberta.
PE is permanent establishment.
Not a “T5”. A “Schedule 5” (“S5” for short). That schedule allocates the income to whichever province you specify, and thus you pay the tax rate for that province.
Be prepared to prove to CRA that the corporation has a “permanent establishment” in Alberta. I don’t know if your scenario qualifies, but I would read that definition in 400(2) very closely, and prepare your argument and supporting documents. It is quite likely that CRA will question the income allocation to a different province, particularly when it results in less tax payable.
This used to pop up a lot when doctors were moving all over the country. All of my doctor clients found it was much easier (and less expensive in the long run - audits, proving office space, etc) to simply open a Corporation in the Province where the BUSINESS (in your case the rental) is. Transfer all assets to the new Corporation, of course.
My old boss found a ruling somewhere that basically said once there was no physical presence in a Province, the Corporation should be transferred to the actual place of business. Unfortunately, he’s long since retired so I can’t give you the ruling details.