How to Determine the Place of Employment for a Remote Worker: Here are CRA’s Rules

Remote Work is Still Widespread Across Canada

As many employees and employees realize the potential benefits and flexibility that working from home affords, a significant portion of Canadians are still working from home post-pandemic. According to Statistics Canada, 18.7% of employees worked mostly from home in May 2024. Trends show that more and more employees are slowly transitioning back into the office, but there are still a large number that are working from home compared to the 7.1% that worked from home in 2016. Working remotely can have important tax implications that remote workers and employers should be aware of.

Place of Employment Will Determine an Employee’s Taxable Income

If you’re an employee, your employer is responsible for withholding income tax, Canada Pension Plan contributions, and Employment Insurance premiums from your pay. Does the employer need to withhold these amounts based on the province you live in, or the province of employment? This will depend on the employee’s place of employment. According to CRA guidelines, 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 this employer where employees report to work or from which employees are paid. For purposes of the place of employment this does not need to be a permanent physical location.

This place of employment analysis only applies if the employee is resident in Canada for tax purposes. For non-residents, any payments received are subject to withholding by the Canadian payor. The non-resident recipient may be eligible for a foreign tax credit in their country of residence, depending on tax treaties. When it comes to services performed in Canada by non-residents, the payor employer is typically required to withhold and remit 25% of the gross payment made to the non-resident for those services, subject to reduction by tax treaty.

Steps in a Place of Residence Analysis

The main factor determining the place of employment is the province where the employee would physically work to perform job duties if he/she wasn’t under a full-time remote work agreement. Typically, if the employee was coming into the office prior to the remote work arrangement, that would be enough to establish a place of employment, provided the employee’s job responsibilities remain the same.

The CRA has also outlined several secondary indicators that should be considered when assessing whether an employee can reasonably be seen as connected to an employer’s establishment:

• The location where the employee attends or would attend in-person meetings, regardless of the communication method used.
• The site where the employee receives or would receive work-related materials, equipment, or related instructions and support.
• The establishment where the employee comes or would come in person to receive guidance from an employer about his or her duties, through any communication method.
• The location responsible for overseeing or supervising the employee, as specified in the agreements between the employer and the employee.
• The establishment to which the employee would report, based on the nature of their job responsibilities.

Where an employer has multiple locations of employment, an assessment will need to be conducted to determine to which of the employment locations the employee is most closely attached, based on a consideration of the factors listed above.

Pro Tax Tip: The Place of Employment Analysis Only Applies to Employees

The type of income must be employment income for this analysis to apply. Independent contractors manage their own taxes, and they will have their own tax residence independent of the employer’s location. Consult with a

FAQ:

Can I claim home office expenses as a remote employee?

A remote worker within a household can claim separate expenses if he or she meets the eligibility criteria:

• Your workspace is where you work over 50% of the time.
• Your employer requires you to maintain a home office as part of your employment conditions and does not reimburse you for your incurred expenses that are directly related to work.
• Your employer completes and signs Form T2200: Declaration of Conditions of Employment.
• You worked in the home office for a period of at least 4 consecutive weeks in the year or you only use your workspace to earn employment income. You also have to use it regularly and continually for in-person meetings with clients, customers, or other people while doing your work.

What percentage of my expenses can I claim for a home office as a remote worker?

You can claim the portion of your home expenses that corresponds to the space used for work. For example, if your home office occupies 10% of your home’s total space, you can claim 10% of eligible expenses. In all cases, the portion claimed must be reasonable otherwise one runs the risk of a reassessment. If you are unsure how much you are able to deduct for home office expenses, contact one of our top Canadian tax lawyers for assistance.

DISCLAIMER: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.