The Canada Revenue Agency’s guidance for determining a full-time remote worker’s province of employment for payroll deduction purposes, which came into force on Jan. 1, could prove burdensome to employers.
“While the intention is to create certainty, whether it will do so remains to be seen,” says Sarah Mills, an employment lawyer at Blaney McMurtry LLP. “Employers will be dealing with directions that are sophisticated, complex and provide no bright-line test.”
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Earlier guidance mandated that the POE for an employee who was required to physically report for work at their employer’s establishment was the province from which the employer paid the employee’s salary and wages.
The analysis required by the most recent guidance; however, is more difficult to apply. Employers must determine whether a “full-time remote work agreement exists” and whether the employee can reasonably be considered “attached to an establishment of the employer.”
A full-time remote work agreement can be temporary or permanent, but its terms must direct or allow the employee to work remotely 100 per cent of the time at locations that aren’t the employer’s establishments. By way of clarification, the CRA has verified that home offices aren’t considered to be establishments of the employer.
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“While the guidance does not require the agreement to be in writing, we always recommend written contracts for all matters relating to employment,” says Mills. “The employer should be tracking the location from which the employee is working and specify it in the agreement.”
If a full-time remote agreement exists, employers must then determine whether the employee can reasonably be considered as “attached to an establishment of the employer.” If so, the POE will be the province or territory where that establishment is located.
“To some extent, this determination is dependent on an individualized assessment that is open to interpretation and discretion.”
Fortunately, the CRA has provided some detailed direction on this issue. According to the agency, the primary indicator for determining whether an employee is attached to a particular establishment is whether the employee would physically report there for work but for the remote work agreement.
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“In a sense, that’s the default,” says Mills. “But if the employee’s duties or circumstances have changed since they last physically reported for work, the assessment could be different.”
The CRA guidance also stipulates ‘secondary’ indicators that go into the determination, including the establishment:
- where the employee attends or would attend in-person meetings;
- where the employee receives work-related material, equipment, instructions and assistance;
- where the employer is responsible for or supervises the employee; and
- where the employee would report.
In cases where employees have attachments to more than one establishment, employers will have to consider to which the employee is attached most closely.
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By way of example, Mills posits the case of a full-time remote employee who lives and works in British Columbia but whose employer has offices in Alberta and Ontario. The worker; however, receives instructions and attends occasional in-person meetings in Alberta. In this case, even if payment comes from Ontario, the closest attachment would be to the Alberta office.
Finally, employers should be aware that POE determinations made to avoid or reduce source deductions or employer payroll contributions aren’t considered reasonable under the guidance.
It’s also important to remember that the guidance is relevant only for the purpose of determining the POE for Canada Pension Plan, Quebec Pension Plan, employment insurance, the Quebec parental insurance plan and income tax deductions, she says.
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“What this means is that the POE for these types of deductions may be different from the POE for other employment issues like employment standards, occupational health and safety, workers’ compensation and human rights legislation.”
Given the complexity, some employment lawyers question whether the new guidance is necessary. “Remember that this is guidance, not legislation, and I question whether a court would even uphold it,” says Mitch Frazer, a pension benefits and employment lawyer and managing partner at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C.
Sunita Doobay, a tax lawyer and partner at Blaney McMurtry, suggests some provinces may have complained that the old rules were inequitable. “There’s no concrete evidence, but you have to wonder whether some jurisdictions were upset that they weren’t getting their fair share.”
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