Dual tax rates – Example 2
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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 small business deduction.
Example
Corp Y has permanent establishments in both Nova Scotia and the Yukon. Its tax year runs from July 1, 2015, to June 30, 2016.
Corp Y claimed the small business deduction when it calculated its federal tax payable.
The lower rate of tax for Nova Scotia is 3%, and the higher rate of tax is 16%.
To calculate its Nova Scotia income tax, Corp Y does the following calculations:
Taxable income allocated to Nova Scotia (from Schedule 5)
$60,000
Taxable income allocated to the Yukon (from Schedule 5)
+ $30,000
Total taxable income earned in Canada
= $90,000
Least of lines 400, 405, 410, and 427 from the T2 return in the federal small business deduction calculation
$78,000
Income eligible for the federal small business deduction attributed to Nova Scotia: ($60,000 ÷ $90,000) × $78,000
= $52,000
Taxable income earned in Nova Scotia
$60,000
Minus: Income eligible for the federal small business deduction attributed to Nova Scotia
− $52,000
Amount taxed at higher rate
= $8,000
Taxes payable at higher rate: $8,000 × 16%
$1,280
Taxes payable at lower rate: $52,000 × 3%
$1,560
Nova Scotia tax payable
= $2,840
To calculate its Yukon income tax payable, Corp Y would repeat the same steps, using the rates that apply.
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- Date modified:
- 2017-04-20