Province of employment: changes from the CRA and Revenu Québec

Do you have staff working from home across Canada? If you have a remote work agreement with one or more of your full-time staff, you should be aware of some important changes from the Canada Revenue Agency (CRA) and Revenu Québec regarding province of employment (POE).

Let’s back up for a second – what’s a remote work agreement?

The CRA and Revenu Québec considers a full-time remote work agreement to be in place if an employer and employee have agreed upon all of the below provisions:

• The employer permits their employees to work 100% remotely on a full-time basis;
• The employee’s work duties are accomplished at a location that’s not the establishment of the employer (which can include multiple locations);
• And this arrangement is either on a permanent or temporary basis.

An employee who doesn’t have to report at a physical location due to the nature of their role (such as a teleworker or travelling representative) is included as well. It’s also important to know that both the employer and the employee must be able to validate that a remote work agreement has been established.

Why is POE important and how does it differ from province of residence?

The answer is simple: compliance.

An employee’s province of employment (POE) is the basis for determining an individual’s Canadian Pension Plan (CPP), Québec Pension Plan (QPP), Employment Insurance (EI), Québec Parental Insurance Plan (QPIP), and/or income tax deductions. Essentially, an employee’s POE impacts which federal and provincial or territorial TD1 form is used and determines the appropriate payroll deductions. The POE is also reported to the CRA and Revenu Québec via an employee’s tax forms.

It’s important to understand the distinction between an employee’s POE and their province or territory of residence, as they can actually differ in some instances. This distinctiveness is significant because it ensures businesses are deducting and remitting the correct statutory deductions (and that employees are being paid correctly, too!). There’s also a specific distinction for individuals whose POE is Québec: regardless of that employee’s province of residence, employers are to deduct QPP (as opposed to CPP) and QPIP contributions as well.

Recent CRA changes to POE administrative policy

Canadian employers with full-time workers under remote work agreements should be aware of the CRA’s changes to POE, which took effect January 1, 2024. The CRA website shares that the parameters to determine the POE for individuals under a remote work agreement are classified under the jurisdiction to where they are most reasonably considered “attached to an establishment of the employer.” It’s possible that an employee would not be considered “attached to an establishment of the employer,” and in that instance this administrative policy change would not apply.

What does this mean?

To determine a full-time, remote employee’s POE, the employer is now asked to consider whether or not the employee could come to their organization and carry out the functions of their employment if it were not for the remote work agreement. Other elements employers are asked to consider include whether or not the employee previously reported to an establishment before entering into a remote work agreement, the work location at which an employee would attend an in-person meeting, and the location where they receive work materials or equipment, among others.

It’s possible that an employee under a remote work agreement could reasonably be attached to two different employer establishments. In that case, the same considerations outlined above should be reviewed to conclude to which of the two locations the employee is more attached.

The CRA has a handy, interactive tool that employers can use to assist in determining an employee’s POE: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/set-up-new-employee/determine-province-employment.html.

Revenu Québec changes to administrative policy for POE

Revenu Québec’s changes to the parameters for determining a POE also took effect January 1, 2024. This change means that POE administrative policy is now aligned between Revenu Québec and the CRA.

Previously, the POE for individuals under a remote work agreement was typically based off the business location in Québec to which the employee reported or from which they were paid. Now, POE is determined by the jurisdiction where they’re most reasonably considered “attached to an establishment of the employer,” reads Revenu Québec’s website.

What does this mean?

Similar to the change outlined with the CRA (mentioned above), to determine a full-time, remote employee’s POE, the employer is asked to consider a number of indicators. Those include the establishment to which the employee would report if there was no remote work agreement in place, whether or not the employee previously reported to an establishment before entering into a remote work agreement, the work location where an employee would attend an in-person meeting, and the location where they receive work materials or equipment, among others. If an employee is considered attached to two different establishments, the same elements would be considered again to conclude to which of the two locations the employee is more attached.

For more information on this Revenu Québec change, visit: https://www.revenuquebec.ca/en/press-room/tax-news/details/2023-11-14/administrative-policy-on-determining-the-province-of-employment-for-quebec-source-deductions-and-employer-contributions/.

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