It is undoubtedly true that the employment relationship has changed because of the pandemic. The era of hybrid and remote workers is likely here to stay, at least for the time being, and this has left employers, the legislature and government agencies rushing to adjust policies and laws to accommodate this new normal. 

One such governmental agency, the Canada Revenue Agency, recently released an online guide (the “Guide”) to help employers determine an employee’s province of employment (“POE”) so that employers can ensure proper deductions are withheld and avoid non-compliance with applicable Canadian tax rules. 

To calculate the applicable deductions on employment income, such as salaries, wages and commissions, an employee’s POE must be determined. The Guide provides that an employee’s POE is determined by three factors: (i) whether the income is employment based or non-employment based, (ii) Canadian residency status of the employee; and (iii) “establishment of the employer,” where the employee reports to work. The establishment of the employer is any place or premises in Canada that is owned, leased or rented by the employer where the employee reports to work or from which employee is paid. The Guide notes that, generally, an employee’s home office is not considered an establishment of the employer for purposes of determining the POE.

The first prong of the three-pronged assessment above addresses whether the income is employment income. For non-employment income such as pension income, retiring allowances, RRSP and CPP/QPP, an employee’s POE is deemed to be the employee’s province or territory of residence for purposes of determining the applicable deductions.

Of course, the Guide should not be conflated with the analysis as to how a court in Canada would view the employment relationship from an employment law perspective. In Canada, most employment relationships are governed by the relevant laws of the province or territory in which the employee resides and performs work. An exception to that is in respect of businesses in Canada that are federally regulated, which includes banks, railways, airlines, telecommunications companies and others, whereby federal employment legislation will govern the relationship instead of provincial laws regardless of where in Canada the employee is located.