When does my client need Form T2203 for business income in more than one province?
Your client needs Form T2203 when they lived in one province on December 31, 2025 and earned business income through a permanent establishment in another province or outside Canada, or when a non resident earned business or employment income in more than one province. It replaces Form 428 and splits provincial tax by each jurisdiction's share of income.
Which clients need Form T2203?
Two situations call for the form. Your client lived in a province or territory at the end of the year (or on the day they left Canada) and some or all of their business income, including income as a retired, inactive or limited partner, can be allocated to a permanent establishment outside that province or outside Canada. Or your client was a non resident all year and carried on business, or earned employment income for duties performed, in more than one province or territory canada.ca.
| Your client's situation | Form T2203? | Why |
|---|---|---|
| Ontario resident, business with offices only in Ontario | No | All business income is earned in the one province with a permanent establishment |
| Ontario resident, business with offices in Ontario and Alberta | Yes | Income is split between the two provinces |
| BC resident whose only business location is in Alberta | Yes | The business income belongs to Alberta, the rest to BC |
| Resident with one office who ships to customers in other provinces | No | No permanent establishment there, so no income is allocated there |
| Limited or inactive partner in a partnership with a permanent establishment in another province | Yes | The form counts that partnership income |
| Resident with a branch outside Canada | Yes | Income allocated outside Canada carries the 48% federal surtax |
| Quebec resident with a permanent establishment outside Quebec | Yes, for the federal side | The refundable Quebec abatement is worked out on Part 2 |
| Employee who worked in two provinces, no business income | No | A resident's employment income follows the province of residence on December 31 |
| Non resident all year with employment or business income in two provinces | Yes | Each province taxes its share |
The rules behind the table are Part XXVI of the Income Tax Regulations. Section 2601 says a resident with no business income from a permanent establishment outside their province has all their income earned in that province; a resident with such income subtracts the business income earned elsewhere laws-lois.justice.gc.ca. Section 2603(2) says no business income is earned in a place where the business has no permanent establishment
laws-lois.justice.gc.ca.
What counts as a permanent establishment in another province?
Regulation 2600(2) defines a permanent establishment as a fixed place of business, including an office, branch, mine, oil well, farm, timberland, factory, workshop or warehouse laws-lois.justice.gc.ca. Three extensions matter in practice:
- An employee or agent established in a place who has general authority to contract for your client, or who regularly fills orders from a stock of merchandise kept there, makes that place a permanent establishment.
- Using substantial machinery or equipment in a place during the year creates one.
- A commission agent, broker or other independent agent, or an office used only to buy goods, does not create one by itself.
So a consultant in Ottawa who bills clients in Gatineau has no permanent establishment in Quebec. The same consultant who rents an office in Gatineau, or keeps a heavy equipment fleet working on a Quebec site, does. The client's T2125 reports the business income; the regulations decide which province it belongs to.
How does Part 1 split the business income between provinces?
When a business has permanent establishments in more than one place, Regulation 2603(3) deems the income earned in each place to be half of the total of two shares: the business income multiplied by the gross revenue reasonably attributable to that permanent establishment over total gross revenue, and the business income multiplied by the salaries and wages paid to employees of that permanent establishment over total salaries and wages laws-lois.justice.gc.ca.
Gross revenue from goods shipped into a province where the business has a permanent establishment goes to that permanent establishment. Goods shipped to a province with no permanent establishment go to the permanent establishment the salesperson who negotiated the sale is attached to. Fees paid to another person for services your client's own employees would normally perform count as salaries and wages; commissions paid to people who aren't employees don't laws-lois.justice.gc.ca.
| Part 1 line | What goes there |
|---|---|
| Line 1 | Net income from line 23600, plus any split income deduction on line 23200 |
| Line 2 | Business income: lines 12200, 13500, 13700, 13900, 14100 and 14300, with losses left out |
| Line 3 | Excess income: line 1 minus line 2 (not below zero) |
| Column 2 | Line 2 allocated to each jurisdiction with a permanent establishment |
| Column 3 | Line 3 allocated to the province of residence (or to Other (Outside Canada) for a deemed resident) |
| Column 5 | Each jurisdiction's percentage of the total |
Those lines and columns come from the 2025 form. If net income on line 1 is lower than business income on line 2, the form has you work out each jurisdiction's percentage from column 2 and apply it to line 1 instead. A Quebec resident allocates business income earned outside Canada to Quebec, not to Other (Outside Canada). If column 5 doesn't total exactly 100%, the difference goes to the province of residence canada.ca.
Worked example: an Ontario resident with a second office in Alberta
Your client lives in Ontario on December 31, 2025. Their sole proprietorship earns $150,000 of net business income on line 13500 from offices in Toronto and Calgary, and they also have $20,000 of employment income, so net income is $170,000. The business had $1,000,000 of gross revenue ($700,000 attributable to Toronto, $300,000 to Calgary) and paid $200,000 of wages ($120,000 to Toronto staff, $80,000 to Calgary staff).
| Step | Ontario | Alberta | Total |
|---|---|---|---|
| Gross revenue share | 70% | 30% | 100% |
| Wages share | 60% | 40% | 100% |
| Half the total of the two shares | 65% | 35% | 100% |
| Column 2: business income | $97,500 | $52,500 | $150,000 |
| Column 3: excess income | $20,000 | $0 | $20,000 |
| Column 4: income allocated | $117,500 | $52,500 | $170,000 |
| Column 5: percentage | 69.12% | 30.88% | 100% |
Notice the employment income lands entirely in Ontario, because excess income goes to the province of residence. With taxable income of $170,000 and credits ignored, the 2025 Form ON428MJ gives Ontario tax on taxable income of $14,877.60 ($12,445.60 plus 12.16% of the $20,000 above $150,000), and Ontario keeps 69.12% of it: $10,283.40, before the Ontario surtax and health premium described below. The 2025 Form AB428MJ gives Alberta tax of $16,175.32 ($13,923.40 plus 12% of the $18,766 above $151,234), and Alberta keeps 30.88%: $4,994.94.
How does each province tax its share?
Each province's rates apply to taxable income from all sources, not just the income allocated to it. Non refundable credits come off that basic tax (with some residency limits), and the result is multiplied by the province's percentage from Part 1. Don't complete Form 428 for any province once you use Form T2203 canada.ca.
Some provincial add ons follow their own path on the 2025 form. Ontario's surtax is worked out on the full Ontario tax before proration and then multiplied by the Ontario percentage, while the Ontario health premium is added only for a client who was an Ontario resident at year end, using a chart on full taxable income canada.ca.
Part 2 handles the federal side. Income allocated to Other (Outside Canada) attracts the federal surtax: 48% of basic federal tax times that percentage, which comes from subsection 120(1) of the Income Tax Act laws-lois.justice.gc.ca. Income allocated to Quebec earns the refundable Quebec abatement, 16.5% of basic federal tax times the Quebec percentage, claimed on line 44000
canada.ca. A client who was not a Quebec resident on December 31 but whose business has a permanent establishment in Quebec also uses Form T2203 to calculate that abatement
canada.ca.
A client subject to minimum tax attaches Form T691, and one with split income completes Form T1206 to get the tax on split income for each province canada.ca.
What trips accountants up when filing a T2203 return?
- The year. As of October 2026 the CRA's form page offers the 2025 version as the current one, and no 2026 form is out yet
canada.ca.
- Electronic filing. Support depends on the software. The CRA's certified software listing for FutureTax 2025 for EFILE names Form T2203 as an exclusion
- Paper returns. The 2025 form says to attach all completed parts to a paper return
- Adjustments. A return that needs Form T2203 can't be changed through Change my return or ReFILE; see changing a filed return.
- Two homes on December 31. A client resident in more than one province on the last day of the year is deemed resident only in the province that can reasonably be regarded as their principal place of residence (Regulation 2607)
laws-lois.justice.gc.ca.
Sources
Does a client who moved provinces partway through the year need Form T2203?
No, not for the move alone. Without business income from a permanent establishment outside their province, all of a resident's income is earned in the province they lived in on the last day of the year laws-lois.justice.gc.ca. See Canadian tax residency for the residence test itself.
What if the business in the other province lost money?
Then nothing is allocated to that province from the loss. Line 2 of Part 1 leaves out losses reported on the business income lines, and the excess income on line 3 goes to the province of residence canada.ca.
Does employment income in another province trigger the form for a resident?
No. For a resident, only business income from a permanent establishment outside the province moves income to another jurisdiction; everything else is earned in the province of residence laws-lois.justice.gc.ca. Employment income by province matters for a non resident, who allocates it to the province where the duties were performed
canada.ca.
Which provincial credits are missing from Form T2203?
Refundable credits still go on Form 479 for the province of residence. The 2025 form also lists credits a client can claim from other provinces, such as the Ontario cooperative education tax credit on Form ON479, added to line 47900 canada.ca.
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.