CRA’s audit practice is to interpret the central-paymaster provision (Reg. 402.1) restrictively

The central-paymaster provision in Reg. 402.1 likely is intended to ensure that the general inter-provincial income allocation formula in Reg. 402(3) (which gives ½ weight to the relative payroll borne by the respective provincial permanent establishments) is uanaffectd where the business has one corporation (Payco) bearing payroll for the whole group. Be that as it may:

CRA's provincial income audit practices take the restrictive view that the provision only applies if Payco's employees spend at least 90 percent of their time on the related corporation's economic activity. Thus, two sister corporations that share vital operational functions equally do not include their share of relevant salaries and wages from those functions when determining income attributable to a province if a third corporation in the group acts as central paymaster.

Neal Armstrong. Summary of Brian Robson, "Provincial Income Allocation," Canadian Tax Highlights, Vol. 24, No. 8, August 2016, p. 3 under Regulation 402.1.