The Canada Revenue Agency has issued a new administrative policy, effective January 1, 2024, that provides guidance on determining the province of employment (“POE”) for remote workers for tax purposes. Employers need to know an employee’s POE for the purpose of CPP/QPP, EI, QPIP and income tax deductions.
Who do the Policy Changes Impact?
The policy gives a new method for determining an employee’s POE where an employee does not physically report for work at their employer’s establishment. It applies to employees who are deemed to be under a “full-time remote work agreement”. The CRA generally considers there to be a “full-time remote work agreement” where:
- the employer and employee can justify that such an agreement was made;
- the employer directs or allows the employee to perform their employment duties full-time (100%) remotely; and
- the employment duties are to be performed at one or more locations that are not an “establishment of the employer”.
The agreement can be either temporary or permanent. For example, where a BC employer allows an employee to work from their family home in Ontario full-time for 18 months, the arrangement would be a full-time remote work agreement even though it is for a limited time.
How to Determine Province of Employment
Where there is a full-time remote work agreement, the employer must then determine if the employee is reasonably considered to be “attached to the establishment of the employer.” The POE will be the province or territory of that establishment. The CRA has provided “primary indicators” and “secondary indicators” to help with this assessment.
The primary indicator of POE is the province where the employee would physically come to work to carry out their employment-related duties if not for the full-time remote work agreement. In general, if the employee came into work before the full-time remote work agreement, that would be sufficient to determine an employee’s POE, assuming the nature of their duties had not changed.
In the example above, the POE of the employee working remotely in Ontario would be BC if they worked in the BC office before the remote work agreement. If they were hired on a full-time remote work agreement, but otherwise would be required to work in the BC office, their POE would also be BC.
CRA has also provided the following secondary indicators which generally will need to be reviewed together when determining whether an employee is reasonably considered to be attached to an establishment of the employer:
- the establishment where the employee attends or would attend in-person meetings, through any type of communication;
- the establishment where the employee receives or would receive work-related material or equipment or associated instructions and assistance;
- the establishment where the employee comes or would come in-person to receive instructions from their employer regarding their duties, through any type of communication;
- the establishment that is responsible for or supervises the employee, as indicated in the contractual agreements between the employer and the employee; and
- the establishment to which the employee would report based on the nature of the duties performed by the employee.
Multiple Employer Locations
Where an employer has more than one location, they need to consider, based on the same factors, which of the employer’s establishments the employee is more closely attached to.
In the example of the employee working remotely in Ontario, let’s now assume the employee was hired on a full-time remote agreement and the employer has offices in both BC and Ontario. This employee communicates with both offices. However, under their employment contract, they report to supervisors in the BC office and if they were required to attend an occasional work-related meeting, it would be at the BC office. Even though the employee works remotely in Ontario and the employer has an Ontario office, this employee would reasonably be considered to be attached to the BC office and BC would be their POE.
What do Employers Need to Do?
In response to this new policy, employers will need to assess their new and existing full-time remote work agreements to determine their employees’ POE. Employers need to be cautious that any POE determination cannot be used to avoid or reduce source deductions or employer contributions. To help with an employer’s assessment, the CRA has create a user-friendly interactive guide which also gives employers the appropriate tax forms and payroll deduction tables.
If you have questions regarding this article, please contact your Harris lawyer.