The Canada Revenue Agency (CRA) has introduced a new administrative policy for determining a remote employee’s province of employment for payroll purposes (the New Policy).
New primary and secondary indicators are to be reviewed by employers for determining the proper province for income tax, CPP and EI withholding purposes of employees who have entered into full-time remote work agreements with their employer. The policy will come into effect January 1, 2024.
Under the existing rules, an employee’s province of employment is determined by the establishment of the employer where the employee reports for work. This establishment is any place or premises in Canada that is owned, leased or rented by the employer where employees report to work. If an employee does not physically report for work, the province of employment is determined by the location of the establishment from which employees are paid.
For employees working remotely full-time (permanently or temporarily) pursuant to a remote work agreement, the New Policy introduces indicia for determining whether that employee can be “reasonably considered attached to an establishment of the employer.” The New Policy stipulates that the province of employment for the purposes of income tax, CPP and EI withholding purposes is where the employee physically reports for work or is reasonably considered attached. The location that employees are “reasonably considered attached to” may differ from the location from which employees are paid.
Primary and secondary indicators
The primary indicator of reasonable attachment is whether the employee would physically attend at that establishment to carry out their duties if they were not under a full-time remote work agreement. If an employee physically reported to a particular establishment before entering remote work, this will be a strong indicator of attachment to that establishment (unless their circumstances or the nature of their duties has changed). Other secondary indicators include:
- whether the employee would report to the establishment for in-person meetings; to pick up materials or equipment; or to receive instructions;
- whether the establishment is referenced in their employment agreement as being their supervising establishment; and
- the establishment the employee would report to, based on the nature of the duties performed.
This determination is made based on the facts of a given case and may require further analysis if the employer has establishments in multiple provinces that the employee could reasonably attach to.
It is important that attachment to a particular establishment can be supported by the facts of the employee’s circumstances. It will not be permissible to conclude that a remote employee is attached to an establishment in a given province or territory for the sole purpose of avoiding source deductions or employer contributions in another province.
Employers should review their payroll practices prior to January 1, 2024 to ensure compliance with the New Policy.
An employee’s province of employment for payroll deductions is not necessarily reflective of the jurisdiction for other important employment matters such as employment standards legislation, workers’ compensation coverage, human rights legislation and privacy legislation. Employers should ensure that each of these matters is reviewed separately to determine compliance with the appropriate jurisdiction.
If you require assistance evaluating how the New Policy may affect your payroll remittances, or whether your remote work arrangements would be encompassed by the New Policy, please contact a member of our Taxation team or Labour & Employment team.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.