Navigating tax compliance for hybrid and remote employees
The pandemic has significantly altered the employment landscape, ushering in the era of hybrid and remote working.
According to an article by Mintz, a legal services firm, this shift has prompted employers, legislative bodies, and government agencies to adapt their policies and laws to the new norm. Among these agencies, the Canada Revenue Agency (CRA) has stepped forward with an online guide aimed at helping employers accurately determine an employee's province of employment (POE).
This guide is essential for ensuring that employers comply with Canadian tax rules by withholding the correct deductions.
The CRA's guide outlines that an employee's POE is determined based on three factors: the nature of the income (employment or non-employment based), the Canadian residency status of the employee, and the "establishment of the employer," which refers to the location where the employee reports to work or is paid from.
Notably, an employee's home office is generally not considered an employer's establishment for POE determination purposes.
For employment income, such as salaries, wages, and commissions, these factors are critical in calculating the appropriate deductions. Conversely, for non-employment income, including pension income, retiring allowances, RRSP, and CPP/QPP, the POE is considered the employee's province or territory of residence.
It's important to understand that this guide does not reflect how a Canadian court might view the employment relationship from a legal perspective.
In Canada, employment relationships are primarily governed by the laws of the province or territory where the employee resides and works. However, businesses that are federally regulated, such as banks and airlines, are exceptions, with federal employment legislation taking precedence over provincial laws.
As the employment landscape continues to evolve in response to the pandemic and remote work becomes more entrenched, the CRA's guidance is a valuable tool for employers navigating the complexities of tax compliance for their workforce.