2021-0911861C6 Regulation 100(4)(a) and Payroll Deductions

Principal Issues: Where an employee is no longer required to report to an establishment of the employer, will the CRA consider a change to its position with respect to the determination of the province of employment?

Position: No.

Reasons: From the moment it is clear that an employee will no longer be required to report for work at the establishment of his employer, he will be deemed to report for work at the employer’s establishment from which the remuneration is paid, as per paragraph 100(4)(a) of the Regulations.

Author: Girard, Pierre
Section: 153(1) of the Act, 100(4)(a) and 102(1) of the Regulations

2021 CTF Annual Tax Conference
CRA Roundtable

Question 10 – Regulation 100(4)(a) - Payroll Deductions and Remittances

Due to the pandemic, remote work arrangements are becoming increasingly popular and may remain permanent even after the pandemic ends. Pursuant to paragraph 100(4)(a) of the Income Tax Regulations (the “Regulations”) and the T4001 Employer's Guide, Payroll Deductions and Remittances, where an employee is not required to report for work at any establishment of the employer, the employee is deemed to report for work at the establishment from which the employee’s salary and wages are paid. That establishment normally means the location of the payroll department or payroll records.  

Please clarify how this guidance applies to a company with a centralized payroll department, where all employees across the country are managed by a single payroll department situated in Ontario. For example, let's say there is an employee, Mr. Y, who lives in PEI and used to physically work at the PEI office location. Mr. Y does not have any authority to contract. Post-pandemic, Mr. Y's entire team switches to 100% remote work and Mr. Y is no longer required to report to the office in PEI, although the team still continues to serve the same Atlantic region as it did previously. The company continues to have a permanent establishment in PEI. Based on the above guidance, it appears that Mr. Y's province of employment will now be Ontario, resulting in a mismatch with his province of residence.

The T4001 Guidance provides that where an employee's province of employment differs from his or her province of residence such that there is too much or too little tax withheld, the employee is able to request a Letter of Authority or use Form TD1 to ask the payroll department to adjust the withholding accordingly. However, this results in a burden to the employee and a large administrative burden to the company's payroll department if numerous employees request such adjustments. Further, a change in province of employment may result in other unintended changes, such as group insurance premiums sales taxes. Although Mr. Y continues to live in PEI and the nature of his work has not changed, by virtue of Mr. Y becoming a remote worker, employer-paid premiums would be subject to 8% Ontario sales tax (previously 0% in PEI).

Question

Given the trend of remote working, will the CRA consider a change to its position so that Mr. Y's province of employment will be PEI?

CRA Response

On the one hand, pursuant to subsection 102(1) of the Regulations, if an employee reports for work at an establishment of the employer in a province, the employee will be considered as reporting for work at this establishment, regardless of where payroll is processed. On the other hand, if an employee is not required to report for work at any establishment of the employer and works exclusively remotely, the employee is deemed to report for work at the establishment from which the remuneration is paid, as provided in paragraph 100(4)(a) of the Regulations.

In the given situation, from the moment it is clear that Mr. Y will no longer be required to report for work at the establishment of his employer in PEI, he will be deemed to report for work at the employer’s establishment in Ontario, as per paragraph 100(4)(a) of the Regulations.

The CRA will continue to monitor trends relating to remote working arrangements.

Pierre Girard
2021-091186
November 25, 2021

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