By Esther S.J. Oh and Cameron A. Axford

CRA Clarifies Issues Surrounding Remote Employees

The Canada Revenue Agency (“CRA”) introduced significant changes regarding determination of the province or territory of employment for remote workers and changes that will apply to taxpayers claiming home office expense deductions for the 2023 taxation year. This will be relevant to charities and NFPs that have employees who work remotely.

Firstly, the CRA issued guidelines (“Guidelines”) on April 10, 2024, for determining the province or territory of employment for remote workers for payroll deduction purposes, effective from January 1, 2024. A determination of the province or territory of employment (which CRA refers to as the POE) is required so that proper deductions are withheld on any employment income, including salaries, wages or commissions.

The POE is determined by a review of the following criteria:

• the type of income;
• the residency status of the employee;
• the establishment of the employer where the employee reports for work.

Under the third criteria for income tax, CPP and EI withholding purposes, an establishment of the employer is any place or premises in Canada that is owned, leased or rented by the employer where employees report to work or from which employees are paid.

An employee is considered to be “reporting for work at an establishment of the employer if one of the following scenarios applies.” The first scenario is part of CRA’s new administrative policy:

1. where full-time remote work agreement was made and the employee can be reasonably considered to be “attached to an establishment of the employer”; or
2. the employee reports for work physically at the establishment.

Under the first scenario, it is first necessary to determine that a full-time remote work agreement was made. If yes, the new CRA administrative policy would apply and it would then be necessary to determine if the employee is reasonably considered to be “attached to an establishment of the employer.” All of the background facts relevant to the employee’s situation must be assessed. CRA states that the primary indicator to determine if an employee can reasonably be considered “attached to an establishment of the employer” is whether the employee physically comes to work to carry out any employment duties, if there is no full-time remote work agreement.

The CRA Guidelines list a number of secondary indicators that can be reviewed to determine the establishment of the employer where the employee (if it was not for the full-time remote work agreement), would physically come to work to carry out their employment duties:

• “The establishment where the employee attends or would attend in-person meetings, through any type of communication;
• The establishment where the employee receives or would receive work-related material or equipment or associated instructions and assistance;
• The establishment where the employee comes or would come in-person to receive instructions from their employer regarding their duties, through any type of communication;
• The establishment that is responsible for or supervises the employee, as indicated in the contractual agreements between the employer and the employee;
• The establishment to which the employee would report based on the nature of the duties performed by the employee”;
• Generally, all the indicators need to be reviewed together in order to determine whether the employee is reasonably considered to be “attached to an establishment of the employer”.

Written agreements which outline these factors are important in determining the issue of attachment.

The new policy on home office expenses, published on January 23, 2024, stipulates that employees can only deduct eligible expenses if they meet specific criteria set out in the CRA publication. New, more detailed requirements will apply for taxpayers wanting to claim home office expenses for the year 2023. The new requirements are also relevant to employers who must provide a completed T2200 form, Declaration of Conditions of Employment to employees who will claim home office expenses.

To be eligible for these deductions, the employee must have worked from home for more than 50% of their time for at least four consecutive weeks. The expenses incurred must be directly related to their work (and must not have been reimbursed by the employer). The CRA publication provides further information, including examples of eligible and non-eligible home office expenses that may be deducted.

These changes provide further clarification on requirements that apply to home office expense deductions and criteria to be used to determine the province or territory of employment for remote workers.

​Read the April 2024 Charity & NFP Law Update