On January 1, 2024 the Canada Revenue Agency's ("CRA") new administrative policy (the "2024 Policy") on determining the province of employment came into effect. This administrative policy only applies for determining province of employment for the purpose of CPP/QPP, EI, QPIP, and income tax deductions. This new administrative policy comes at a time when in the post-COVID era, many employers have shifted away from the traditional in-office requirement and many employees work-from-home.
When an employer pays employment remuneration (e.g., salary, wages or commissions), the employee's "province of employment" must be identified in order to determine the appropriate provincial payroll deductions to be withheld and remitted by the employer.
This article will consider how employers have in the past determined employees' province of employment and the impact of the 2024 Policy.
1. Employees Who Report to Work
Generally, if an employee reports to a particular establishment of the employer, the employee's province of employment is the one in which that establishment is located. The CRA indicates that there is no minimum amount of time the employee has to report to that establishment, and it need not be a permanent physical location. For these purposes, the CRA considers an "establishment" to be any place or premises in Canada that is owned, leased or rented by the employer and where one or more employees report to work or from which one or more employees are paid. As such, an employee's home office would normally not be considered to be an "establishment" of an employer.
If an employee reports to more than one establishment of the employer, the employee's province of employment is the province in which the establishment of the employer is located where the employee spends the most time (if the employee reports to each establishment an equal amount of time, the employee's province of employment is the province in which the establishment of the employer where the employee last worked is located).
2. Employees Who Work Remotely
Historically, where an employee is not required to physically report to work at an "establishment" of an employer, for purposes of remuneration that is salary, wages or commissions, the employee has been deemed by CRA to report to work at the employer's establishment from which the remuneration is paid. According to the CRA, the establishment from which the remuneration is paid is generally the establishment that actually bears the cost of the employee (i.e., incurs the expense for T2 report purposes). CRA indicates that the establishment from which the remuneration is paid will also normally be the location of employer's payroll department or payroll records.
However, according to the new CRA administrative policy, an employee who is not required to report to work will nonetheless be considered to be reporting for work at an establishment of the employer if (i) a "full-time remote work agreement" exists between the employer and the employee (i.e., a temporary or permanent agreement in respect of which the employer directs or allows the employee to perform 100% of their employment duties remotely and the duties are to be performed at one or more locations that are not establishments of the employer), and (ii) the employee is reasonably considered to be "attached to an establishment of the employer" (i.e., if not for the full-time remote work agreement, the employee would physically come to work to carry out the functions related to their employment duties at that establishment; relevant factors for consideration include whether the establishment is where the employee would: attend in-person meetings (through any type of communication), receive work-related material or equipment or associated instructions and assistance, come in-person to receive instructions from their employer regarding their duties (through any type of communication), be under the responsibility or supervision of (as indicated in the contractual agreement(s) between the employer and the employee), and report to based on the nature of the duties performed by the employee).
CRA indicates that a reasonable attachment determination based on the relevant indicators must be supported by the relevant facts applicable to the employee's situation and the determination cannot be used to avoid source deductions or employer contributions in a particular province. Furthermore, if an employee can reasonably be considered to be attached to more than one establishment of the employer, the same indicators should be used to determine which establishment the employee can reasonably be considered as being more closely attached to. If an employee does not report to an establishment and is not reasonably considered attached to an establishment of the employer, the province of employment continues to be the province the employer's establishment from which the remuneration is paid is located.
If the employee works in Canada but the employer does not have an establishment in Canada, the employment is considered to be in Canada but beyond the limits of any province or territory. This means that no TD1 provincial and territorial form is required.
3. What about Québec?
CRA's 2024 Policy indicates that it is applicable for purposes of determining the province of employment in respect of CPP, EI, QPP, QPIP and income tax deductions. Importantly, Revenu Québec has released a similar administrative policy on November 14, 2023, effective as of January 1, 2024. This new administrative policy applies to source deductions for Québec income tax, QPP, QPIP, the health services fund, the Workforce Skills Development and Recognition Fund, and contributions related to labour standards ("Québec Deductions").
This new administrative policy indicates that an employer will be required to make Québec Deductions if the employee (i) reports for work at an establishment of the employer located in Québec, or (ii) the employee is not required to report for work at an establishment of their employer (in Québec or elsewhere), and their salary or wages are paid from an establishment of the employer located in Québec.
Similar to the new CRA administrative policy, Revenu Québec indicates that if an employee does not physically report for work at an establishment of their employer, the employee will be considered to be reporting for work at an establishment of their employer if they are "attached" to the establishment. An employee is attached to an establishment if (i) the employee has a temporary or permanent work agreement that allows the employee to work remotely full-time, and (ii) the employee is reasonably considered to be attached to an establishment of the employer (the factors for determining if an employee is considered to be attached to an establishment of the employer are the same as under the CRA administrative policy above).
4. Conclusion
It is important to review your payroll policies to ensure that they comply with the new CRA administrative policy on determining province of employment. Importantly, employers should consider whether a full-time remote work agreement should be put into place for employees who do not report to an establishment of the employer.
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