For the ever-increasing number of Canadians who work remotely full-time from home, and for their employers who may be located outside the province or country, the CRA recently issued new guidance on the rules for payroll deductions and employer remittances, which can be found here: Determine the province of employment (POE) – Canada.ca

Many remote employees assume that their province of residence will determine the payroll deductions that will be applied on each paycheque, because their province of residence determines their tax liability at year-end. However, the CRA treats these 2 concepts differently. While the employee’s year-end tax liability does depend on their province of residence, payroll deductions and employer contributions through the year must be made based on applicable taxes in the “province of employment”. The province of employment is often not the same as the province of residence.

The CRA outlines the following principles for determining the province of employment for a remote worker:

  • Generally, the province of employment is the location where the employee “reports to work at an establishment of the employer”.
  • However, when an employee does not report to work in person, then the province of employment for payroll deductions and remittances is normally the location of the employer’s establishment “from where the employee’s salary and wages are paid”.
  • Based on past CRA guidance, this is usually the location of the employer’s payroll department or payroll records
  • Based on the CRA’s recent guidance, new principles apply if the employee and employer have a full-time remote arrangement in place
  • In this case, the CRA will look at a series of factors to determine whether the employee is “attached to an establishment of the employer” that should be used to determine the province of employment.  These factors include:
    • Primarily, whether the employee would, but for the full-time remote work agreement, physically come to work at the relevant establishment
    • Whether the employee would attend in-person meetings, through any type of communication, at that establishment;
    • Whether the employee receives or would receive work-related material or equipment or associated instructions and assistance at that establishment;
    • Whether the employee receives or would receive instructions from their employer regarding their duties, through any type of communication, at that establishment;
    • Whether the employee would be supervised, as indicated in the employment contract, from that establishment; or
    • Whether the employee would report to that establishment based on the nature of their duties.
  • If after analyzing these factors, the employee is not determined to be “attached to an establishment of the employer” (whether in the employee’s province of residence or a different location), then it seems that the pre-existing rules for determining the province of employment based on the location of the employer’s payroll department or records will continue to apply.

For more information, please get in touch with your AES contact.