The Canada Revenue Agency (CRA) has recently introduced a significant policy update that redefines how the province of employment (POE) is determined for remote workers, effective January 1, 2025. This change is crucial for employees and employers alike, as it directly affects payroll deductions for income tax, Canada Pension Plan (CPP), and Employment Insurance (EI).
Key Aspects of the New CRA Policy
Previously, an employee’s POE for payroll purposes was typically the physical location where they reported for work. However, with the increasing prevalence of remote work, the CRA has adapted its guidelines to include conditions where the employee does not physically report to the employer’s establishment but is still considered “attached” to an establishment of the employer based on a “full-time remote work agreement.”
A “full-time remote work agreement” is recognized by the CRA when:
- The employer permits the employee to perform duties remotely on a full-time basis.
- The work is performed at locations that are not considered establishments of the employer.
To determine if an employee is “attached” to an employer’s establishment, primary indicators (such as the employee’s previous physical reporting location) and secondary indicators (such as locations for receiving instructions and materials, or where they would typically engage in work-related meetings) are considered.
Implications for Employees
For employees, the most significant implication of this policy change is the potential shift in tax liabilities and payroll deductions based on their deemed POE. Specifically:
- Employees must now ensure they understand where they are considered to be reporting for work, as this will determine the jurisdiction for their income tax deductions.
- In cases where employees are working remotely in a different province from the employer’s establishment, or where they do not regularly report to any physical location, the determination of their POE could lead to different tax outcomes compared to traditional arrangements.
Employees Would Have To Remit Their Own Provincial Taxes:
- Province of Employment vs. Province of Residence: For remote workers, the province or country of employment (POE) is where their employer’s business is established, which may differ from where the employee resides. If you’re employed by a company in a different province or country, your employer will deduct taxes based on the rates of the province or country where they are domiciled, not necessarily where you live.
- Self-Remittance of Taxes: Remote workers whose employment duties are in a province or country different from where taxes are deducted may need to reconcile the difference in tax rates when filing their taxes. This can mean owing additional provincial taxes depending on the provincial rates applicable to their income
- Since there is going to be an increase in taxes owed for the 2025 Personal Tax Year it is important that all individuals file and complete their 2025 Personal Income tax returns by April 30th, 2026 to avoid penalties.
- If your income tax owing for 2025 to the CRA will be more than $3000/year, the CRA will require personal quarterly instalment payments which will take effect in the following year.
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