On September 6, 2023, the CRA introduced a new administrative policy on the province of employment for employees who are not required to physically report to work at an employer’s establishment. This change comes into effect January 1, 2024.
Before this new administrative policy change, the province of employment for a fully remote employee was determined based on the province where the business is located and from where their salary is paid. The province of residence (where the employee resides) is not a factor in determining the province of employment. The location from where a third-party service provider processes the employer’s payroll was also not a factor for determining the province of employment.
The new administrative policy, which will lighten the burden for affected employers and employees without any unintended consequences for provincial tax or benefits administration, will enable employers to determine the province of employment based on indicators to consider for the employee to be reasonably considered "attached to an establishment of the employer".
- The primary indicator to determine if an employee can reasonably be considered "attached to an establishment of the employer" is whether the employee would physically come to work to carry out the functions related to their employment duties at that establishment, if it was not for the full-time remote work agreement.
- For employees who physically reported to an establishment of the employer immediately before entering a full-time remote work agreement, that establishment is the one to which they would be reasonably considered to be attached, unless the employee's circumstances or the nature of their duties have changed.
The establishment of the employer where the employee, if it was not 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 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
- The establishment to which the employee would report based on the nature of the duties performed by the employee
- The establishment of the employer where the employee, if it was not for the full-time remote work agreement, would physically come to work to carry out the functions related to their employment duties:
Generally, all the indicators need to be reviewed together in order to determine whether the employee is reasonably considered to be "attached to an establishment of the employer".
What is considered a reasonable attachment determination
To be considered “reasonable” by the CRA, your determination that the employee is attached to an establishment based on the indicators above must be supported by the facts of your employee’s employment situation. This determination cannot be used to avoid source deductions or employer contributions in a province or territory.
More than 1 establishment of the employer
If your employee can be reasonably considered attached to more than 1 establishment of the employer, the same indicators should be used to determine to which establishment of the employer the employee can be reasonably considered as more closely attached to.
An employer’s establishment does not need to be a permanent physical location. It is any place or premises in Canada from which employees report to work or are paid. The location may be:
- Leased; or
Employers must withhold the appropriate CPP, EI, and income tax based on the correct determination of the province of employment.
As a result of this change, employers must:
- Review the employment contracts for remote employees
- Obtain new TD1s
- Use appropriate payroll deductions tables
- Pay health tax premiums and levies if applicable
The CRA has an interactive tool to help employers determine their employees' province of employment.