At the beginning of this month (January 1, 2024), a new Canada Revenue Agency (the “CRA”) administrative policy (the “Policy”) came into effect that will impact employers with full-time remote workers. Specifically, the Policy provides guidance with respect to the determination of an employee’s province of employment (or “POE”) for tax purposes in the case where a full-time remote work agreement has been made between that employee and their employer.
Why is POE Important?
The accurate determination of an employee’s POE is imperative to ensure that the employer can make the appropriate source deductions and payroll contributions. The POE is determined by reference to three factors:
- The type of income being paid to the employee,
- The residency status of the employee, and
- The establishment of the employer where the employee reports for work.
For income tax, CPP and EI withholding purposes, an establishment of the employer is “any place or premises in Canada that is owned, leased or rented by [the] employer where employees report to work or from which employees are paid”. For the purposes of the POE, this does not necessarily need to be a permanent physical location and could include, for example, a temporary site office at a construction site. Generally, however, an employee’s home office will not be considered to be an establishment of the employer.
What Does the Policy Provide?
Effective January 1, 2024, where an employer pays employment income to an employee who is a resident of Canada, the employee will be considered to report for work at an establishment of the employer as long as one of the following applies:
- The employee physically reports for work at an establishment of the employer for any amount of time (i.e., no minimum attendance requirement), or
- A full-time remote work agreement has been made between the employer and the employee, and the employee can reasonably be considered to be “attached to an establishment of the employer”.
In either case, the POE will be the province or territory of that establishment.
a) Full-Time Remote Work Agreements
Under the Policy, the CRA will typically consider that a full-time remote work agreement has been made between an employer and an employee when the following conditions are met:
- The agreement is either temporary or permanent,
- The employer directs or allows the employee to perform their duties remotely on a full-time basis (i.e., 100% of the time), and
- The employee’s duties are to be performed at one or more locations that are not establishments of the employer.
In all cases, the employer and the employee who are parties to the full-time remote work agreement must be able to justify that such an agreement was made.
b) Reasonable Attachment to an Establishment of the Employer
Under the Policy, the determination of whether an employee who is a party to a full-time remote work agreement can reasonably be considered to be “attached to an establishment of the employer” must be based on the specific facts and circumstances in each case.
Helpfully, the Policy lists several indicators that should be considered in making that determination:
- Primary Indicator – The primary indicator for determining whether an employee can reasonably be considered to be “attached to an establishment of the employer” is whether the employee would physically report to the establishment to carry out their duties, but for the existence of the full-time remote work agreement. Notably, for employees who did physically report to an establishment of the employer immediately prior to entering into a full-time remote work agreement, that particular establishment is the one to which they would reasonably be considered to be attached to, unless the employee’s circumstances or the nature of their duties have changed since entering into the agreement.
- Secondary Indicators – Secondary indicators can also be used for determining whether an employee can reasonably be considered to be “attached to an establishment of the employer”. Relevant secondary indicators consist of the following:
- 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 to based on the nature of the duties performed by the employee.
- The establishment where the employee attends or would attend in-person meetings, through any type of communication,
Generally, the indicators must all be reviewed collectively in order to properly assess whether an employee can reasonably be considered to be “attached to an establishment of the employer”.
It is important to note that to be considered “reasonable” by the CRA, an employer’s determination that an employee is attached to an establishment based on the indicators must be supported by the particular facts of that employee’s employment situation. An employer’s determination will not be considered reasonable where it is made to avoid source deductions or payroll contributions in a province or territory.
c) More Than One Establishment of the Employer
In the event that an employee who is a party to a full-time remote work agreement can reasonably be considered to be attached to more than one establishment of the employer, the Policy indicates that the previously detailed primary and secondary indicators should be used to determine which establishment the employee can reasonably be considered to be more closely attached to.
Application of the Policy
Employers should note that the Policy only applies for determining the POE for the purpose of CPP/QPP, EI, QPIP and income tax deductions.
In Our View
Prior to the implementation of the Policy, the POE of an employee who worked remotely on a full-time basis and who did not physically report to an establishment of the employer was deemed to be the one from where the employee’s wages were paid. Now, under the Policy, the POE for such an employee may differ if it can be established that a full-time remote work agreement has been made between that employee and their employer, and that the employee can reasonably be considered to be “attached to an establishment of the employer” in another province or territory.
Employers who have not already done so must therefore go through the exercise of determining the POE for each of their full-time remote workers in light of the Policy as soon as possible and make any required payroll changes accordingly. To assist in that task, the CRA has made available an interactive guide intended to walk employers through the process of properly determining the POE for tax purposes.
For more information, please contact Sébastien Huard at 613-940-2744 or Marie Bordeleau at 613-404-5875.
