Payroll considerations for workers residing in other provinces?

[Conner Lantz]

#79657

We are a small non-unionized remote-first organization and based in Ontario. We have employees in ON, BC, AB, QC, SK etc. For payroll provincial tax, we deduct Ontario TD1ON taxes for all employees, regardless of what province they live in. Is that the correct approach for payroll? I had an employee in BC, Quebec and in Saskatchewan worried about how they might be impacted by this when it is time to file their own income tax return. What are some considerations I can share with them? I don’t want to only say “Talk to your accountant”. Please include a sample policy or guide and links to supporting legislation if possible.

[Conner Lantz]

#79656

1. An employee’s home office is not normally considered to be a “fixed place of business” of the corporate employer, provided that the home office is not objectively identified with the business of the employer. Accordingly, a home office should generally not result in a fixed place of business permanent establishment (PE) of the employer.
2. An employee working from home in a province may cause the corporate employer to be deemed to have a PE in that province, if the employee has a general authority to contract on behalf of the corporation. General authority to contract is normally considered to exist if the employee in the ordinary course of business is able to bind the corporation, without prior approval.
3. A home office is generally not considered to be an “establishment” of the employer for payroll withholding purposes, such that an employee who works full-time from home in a particular province is generally not considered to report for work at an establishment of the employer in that province solely by virtue of the home office. Accordingly, the employee is generally deemed to report for work at the establishment of the employer from which his, her or their remuneration is paid.
4. A Canadian-resident corporation is subject to provincial or territorial corporate income tax if it has a PE in the province or territory. If the corporation has one or more PEs in more than one province or territory, it is taxable in each of those provinces and territories, and its taxable income is allocated to each PE to ensure that the same income is not taxed by more than one province or territory.
5. While no formal legal right to use a place is required for a PE to exist, in the case of a home office of an employee, an employer would typically not be expected to exercise the required degree of control over the home office to cause the home office to be a PE. Canadian courts have concluded that if an employee, for purposes of discharging his or her duties under an employment contract, sets up an office in his or her own premises and works remotely, the home office would not normally be considered a PE of the employer provided the home office space was not under the control of the employer and would not be objectively identified with the business of the employer.

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