Examples

Examples

In each of the following three examples:

  • The partnership TNPE are $1,000,000 for tax year 2023
  • The net corporate federal income tax rate is 15%
  • The general corporate income tax rates used for the provinces are 11.5% for Ontario and 12% for Manitoba

Example 1

The SIFT partnership does not have a PE in a province or territory (for example, there is a PE outside of Canada).

TNPE is $1,000,000.
Total tax rate = Net corporate income tax rate + Provincial SIFT tax rate
Total tax rate = 15% + 10% = 25% (0.25 expressed as a decimal fraction)
Total SIFT tax payable = $1,000,000 × 0.25 = $250,000 

Allocation of tax payable
Federal tax payable = $1,000,000 × 0.15 = $150,000
Federal tax payable (TNPE earned outside of Canada) = $1,000,000 × 0.10 = $100,000

The deemed dividend for example 1 is calculated as follows:
Deemed dividend = The partnership TNPE - SIFT income tax
Deemed dividend = $1,000,000 - $250,000 = $750,000

Example 2

The SIFT partnership has a PE in only one province or territory: Ontario.

TNPE is $1,000,000.
The total tax rate = Net corporate income tax rate + Provincial SIFT tax rate
Total tax rate = 15% + 11.5% = 26.5% (0.265 expressed as a decimal fraction)
Total SIFT tax payable = $1,000,000 × 0.265 = $265,000

Allocation of tax payable
Federal tax payable = $1,000,000 × 0.15 = $150,000
Ontario tax payable = $1,000,000 × 0.115 = $115,000

Example 3

The SIFT partnership has a PE in more than one province or territory: Ontario and Manitoba. It also has TNPE from outside of Canada. TNPE are $600,000 from Ontario and $250,000 from Manitoba.
Where there is a PE in more than one province or territory, you need to calculate the Provincial SIFT tax rate as follows:

Provincial SIFT tax rate calculation:

Step 1:
Calculation of the rate applicable to each province or territory where the partnership has a PE.
Tax rate for Ontario = (TNPE from Ontario / the partnership TNPE) × Ontario general corporate income tax rate
Tax rate for Ontario = ($600,000 / $1,000,000) × 11.5% = 6.9% (0.069 expressed as a decimal fraction)

The tax rate for Manitoba = (TNPE from Manitoba / the partnership TNPE) × Manitoba general corporate income tax rate
Tax rate for Manitoba = ($250,000 / $1,000,000) × 12% = 3% (0.03 expressed as a decimal fraction)

Step 2:
Calculation of the rate applicable where the partnership has a PE outside of Canada.
Tax rate = (1 - (TNPE from the provinces / the partnership TNPE)) × 0.1
Tax rate = (1 - ($600,000 + $250,000 / $1,000,000)) × 0.1 = 1.5% (0.015 expressed as a decimal fraction)

Provincial SIFT tax rate = 6.9% + 3% + 1.5% = 11.4% (0.114 expressed as a decimal fraction)

The calculated Provincial SIFT tax rate is used to determine the total SIFT tax payable:
Total tax rate = Net corporate income tax rate + Provincial SIFT tax rate
Total tax rate = 15% + 11.4% = 26.4% (0.264 expressed as a decimal fraction)
SIFT tax payable = $1,000,000 × 0.264 = $264,000

Allocation of tax payable
Federal tax payable = $1,000,000 × 0.15 = $150,000
Ontario tax payable = $1,000,000 × 0.069 = $69,000
Manitoba tax payable = $1,000,000 × 0.03 = $30,000
Federal tax payable (TNPE earned outside of Canada) = $1,000,000 × 0.015 = $15,000

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