Do you have remote employees working across the country? The CRA’s latest shift in remote work policy may impact your payroll deductions.
In today’s professional landscape, where remote work has transitioned from a temporary necessity to a permanent fixture for many organizations, the Canada Revenue Agency (CRA) has introduced a new administrative policy to better define elements of remote work for the purpose of payroll deductions. Effective January 1, 2024, this policy provides clarity for businesses on determining the province of employment (POE) for payroll deduction purposes, particularly for employees who work out of province or country. This article aims to assist business owners and their payroll providers in navigating these changes, ensuring compliance, and optimizing payroll management in the context of remote work arrangements.
Understanding the Province of Employment (“POE”)
The POE is crucial for withholding the correct amount of income tax, Canada Pension Plan (CPP), and Employment Insurance (EI) deductions. Traditionally, the POE was determined based on the physical location where an employee reported to work. However, with the rise of remote work, the CRA has expanded its policy to accommodate the changing work landscape.
Under the new CRA administrative policy, the following factors are considered in determining the POE for fully remote employees:
- Type of Income: Salaries, wages, or commissions.
- Full-time Remote Work Agreement: Both the employee and employer must justify that an agreement was made.
- Residency Status of the Employee: Where the employee resides.
- Employer’s Establishment: Where the employee reports for work or deemed to report for work by being “attached to an establishment of the employer.”
Notably, an employer’s establishment encompasses any place in Canada owned, leased, or rented by the employer from which employees are paid or report to work. This definition has been broadened to include employees who, under a full-time remote work agreement, are considered “attached to an establishment of the employer” for the purpose of CPP/QPP, EI, QPIP, and income tax deductions.
Determining Employee Attachment to an Establishment
To ascertain if an employee with a full-time remote work agreement is “attached to an establishment of the employer,” all relevant facts of the employee’s situation must be examined. The primary indicator is the location of the employer that the employee would physically work if a full-time remote work agreement did not exist. Secondary factors include location to attend in-person meetings or in-person instruction, location where work related equipment or materials are received, the establishment responsible to supervise the employee and/or the establishment most relevant to the nature of the duties performed by the employee. The CRA has developed an interactive guide, which helps incorporate these relevant factors for various situations.
Key Implications for Payroll
If an employee’s POE differs from their province of residence, adjustments may be needed to ensure appropriate tax deductions are made. Employers should use the TD1 federal form, the TD1 provincial and territorial form, and the appropriate payroll deduction tables to calculate these deductions accurately.
The CRA’s updated administrative policy reflects a significant shift towards more detailed reporting to account for the nuances of proper taxation for remote work. By understanding and implementing these guidelines, business owners and payroll providers can ensure compliance, minimize payroll errors, and avoid potential penalty and interest charges.
For more detailed information on managing payroll deductions and understanding the implications of the new policy, visit this CRA website. If you have any questions regarding how these changes may impact your business, or any other accounting, tax and business advisory items, please contact your Bateman MacKay Business Advisor. Topical accounting, tax and business advisory articles pertinent to business owners can be accessed by subscribing to our blog and following us on LinkedIn.
