In Sept 2023, 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). The new policy is effective January 1, 2024 and may require changes to the payroll tables applied to fully remote workers in 2024 and beyond.
Current CRA Guidance
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.
Updated CRA Guidance
Effective January 1, 2024, in order to determine the province of employment of an employee who does not physically report for work at their employer’s establishment, employers will need to perform the new analysis set out below.
The CRA’s new administrative policy will apply only to “full-time remote work agreements,” which are agreements between employers and employees with the following characteristics:
- the agreements can be either temporary or permanent
- the employer directs or allows employees to perform their employment duties full-time (100%) remotely (employers should be aware that the CRA states that the employer and the employee “must be able to justify” that a full-time remote work agreement was made)
- the employment duties are to be performed at one or more locations that are not establishments of the employer
Where there is a full-time work agreement, the employer must then determine if the employee is reasonably considered to be “attached to an establishment of the employer.” This is a new test.
Determine the province of employment (POE)
When you pay employment income such as salaries, wages or commissions, the employee’s province or territory of employment (POE) must be determined so that the proper deductions are withheld. This depends on whether your employee “reports for work” at any of your establishments.
The POE is determined by:
- the type of income
- the residency status of the employee
- 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 this employer where employees report to work or from which employees are paid. For purposes of the POE, this does not need to be a permanent physical location.
Conclusion
If you have any questions regarding the potential impact of the new administrative policy on remote work arrangements in your workplace, please get in touch with our expert payroll team in Duffin Martin Tax and Accounting to determine whether the new policy would apply to your remote work arrangements or how it could affect your payroll remittances.