Dual tax rates – Example 2
Income earned in more than one province or territory
When you allocate taxable income to more than one province or territory, you also have to allocate proportionally any income eligible for the federal small business deduction.
Example
Corp Y has permanent establishments in both Newfoundland and Labrador and Nunavut. Its tax year runs from July 1, 2021, to June 30, 2022.
Corp Y claimed the small business deduction when it calculated its federal tax payable.
The lower rate of tax for Newfoundland and Labrador is 3%, and the higher rate of tax is 15%.
To calculate its Newfoundland and Labrador income tax, Corp Y does the following calculations:
Taxable income allocated to Newfoundland and Labrador (from Schedule 5)
$60,000
Taxable income allocated to Nunavut (from Schedule 5)
+ $30,000
Total taxable income earned in Canada
= $90,000
Least of lines 400, 405, 410, and 428 in the federal small business deduction calculation (from the T2 return)
$78,000
Income eligible for the federal small business deduction attributed to Newfoundland and Labrador: ($60,000 ÷ $90,000) × $78,000
= $52,000
Taxable income earned in Newfoundland and Labrador
$60,000
Minus: Income eligible for the federal small business deduction attributed to Newfoundland and Labrador
− $52,000
Amount taxed at higher rate
= $8,000
Taxes payable at higher rate: $8,000 × 15%
$1,200
Taxes payable at lower rate: $52,000 × 3%
$1,560
Newfoundland and Labrador tax payable
= $2,760
To calculate its Nunavut income tax payable, Corp Y would repeat the same steps, using the rates that apply.
Forms and publications
Page details
- Date modified: