The Canada Revenue Agency (“CRA”) is introducing a new administrative policy (the “Policy”) relevant to remote workers to be effective on January 1, 2024. The policy will provide more certainty with respect to the province of employment of employees that are in a remote work arrangement in another province and are “attached” to an establishment of the employer.
An individual is subject to provincial income tax based on the individual’s province of residence. The province (or territory) of residence is generally where the individual lived or is factually resident on December 31 of the relevant year. However, employee payroll withholdings are based on the individual’s province of employment. An employee that does not have the same province of employment and province of residence could be, depending on the relevant provinces, subject to more or less payroll tax withholdings. If too little tax is being withheld, then the employee should consider asking the employer to withhold more tax consistent with the tax rates and credits applicable to their province of residence. If too much tax is being withheld, the employee should consider seeking a letter of authority from the CRA authorizing the employer to reduce taxes due to the fact they will be paying less tax than is being withheld based on their province of residence.
The province of employment is generally where the employee reports for work physically at the establishment of the employer. If the employee does not physically report for work at an establishment of the employer, then (absent the Policy) the province of employment is the establishment from which the employee is paid. An employee of an employer that does not have an establishment in Canada uses the tax tables for employment in “Canada but beyond the limits of any province or territory.”
Under the new Policy, an employee is considered to be reporting for work at an establishment of the employer if, where a full-time remote work arrangement has been established, it is reasonable to consider the employee as “attached to an establishment of the employer.” The Policy only applies in determining the province of employment for purposes related to Canada pension plan/Quebec pension plan, employment insurance and Quebec Parental insurance plan and income tax deductions.[1]
The CRA has provided the following guidance with respect to this Policy:
Step 1: Determine if a Full-Time Remote Work Agreement Exists
The CRA will first consider whether a full-time remote work agreement is in place. This agreement typically involves the following criteria:
- the arrangement can be either temporary or permanent.
- the employer permits employees to work remotely full-time.
- both the employer and employee can justify the existence of this agreement.
The Policy applies to employees who do not report to a physical workplace, such as full-time teleworkers or traveling representatives. If a full-time remote work agreement exists, then the next step is considering if the employment is attached to an establishment of the employer. If it does not, then the Policy does not apply.
Step 2: Assess Reasonable Attachment to an Establishment
The second step involves evaluating whether the employee can reasonably be considered “attached to an establishment of the employer.” This assessment is based on a comprehensive review of the facts related to the employee’s situation.
Primary Indicator:
The primary indicator for this determination is whether the employee would physically come to work at an establishment if not for the full-time remote work agreement. Employees who previously reported to an establishment before adopting full-time remote work arrangements are generally attached to that establishment, unless circumstances or job duties have changed.
Secondary Indicators:
The following secondary indicators can assist in determining the establishment of the employer where the employee, but for the full-time remote work agreement, would physically come to work to carry out the functions related to their employment duties:
- the establishment where the employee receives work-related materials or instructions.
- the establishment where the employee obtains instructions regarding their duties.
- the establishment responsible for supervising the employee.
- the establishment aligned with the nature of the employee’s duties.
All of these indicators should be considered together to assess whether the employee is reasonably considered to be “attached to an establishment of the employer.”
If an employee can reasonably be attached to more than one establishment of the employer, the same indicators should be used to determine which establishment the employee is more closely attached to.
Commentary The new Policy does provide some welcome certainty and predictability with respect to determining the province of employment of remote workers. Without the Policy, the remote worker that does not report for work at an establishment of an employer would presumably have a province of employment based on the establishment from which the remuneration is paid, which may be different than where the remote worker is “attached” or where they used to physically report for work. In most cases, the new Policy should ease the burden of the employer to dealing with remote workers who may be working remotely in different provinces. It is likely most helpful for those employees that previously report for work at an establishment but have transitioned to a remote work arrangement. Accordingly, employers that are either hiring new employees that will work remotely in another province or are transitioning existing employees to a remote work arrangement (especially if paid from another province) should consider entering into a full-time remote work agreement.
[1] Generally, the province of employment for non-employment income such as pension income, retiring allowances and registered retirement savings plan payments is the recipient’s province or territory of residence.
Sabrina completed her JD/MBA degree at Osgoode Hall Law School and the Schulich School of Business with a specialization in Finance and as a member of the Dean’s Honour List. She earned her Bachelor of Science from the University of Toronto in Economics, where she graduated with High Distinction and as a Dean’s List Scholar. At Osgoode, Sabrina served as a Dean’s Fellow, sat on the Standing Committee for Teaching and Learning, and was an Associate Editor on the Osgoode Hall Law Journal.
Kevin Yip has a broad income tax practice with expertise in all aspects of domestic and international tax planning, corporate reorganizations, and mergers and acquisitions. Kevin also regularly assists clients in transfer pricing, real estate transactions, corporate financing and executive compensation plans.