The COVID-19 pandemic thrust many employers into uncharted territory – requiring rapid adoption of remote working technology and development of guidelines to maintain productivity while still preserving some sort of positive work culture amongst employees.

Many businesses were quite successful in this transition and their employees may now have the ability to perform 100% of their duties remotely. This can be seen as a win-win for employees and employers. Employees can eliminate their commuting time and may even decide to move to remote locations where the cost of living is lower than large urban centres. Employers are able to draw from a larger talent pool – they are not limited to the candidates that live near their location, nor do they have to provide relocation allowances to new hires.

However, having employees earn employment income in a different province than the one where the business is established has become the headache of HR departments across the country. Because of this new reality, the CRA has introduced a new administrative policy relating to provincial source deductions for remote workers, effective January 1, 2024.

The source deductions that are required to be withheld from an employee’s wages depends on their province or territory of employment (POE). The POE is determined by:

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

The new policy allows a remote worker to be “attached” to a particular establishment of the employer if a full-time remote work agreement (RWA) is made between the employer and employee. Once the RWA is in place, there are primary and secondary indicators of which establishment the remote employee is attached to.

The primary indicator is if the employee would physically come to work to carry out the functions related to their employment duties at the establishment. This indicator is especially strong in the case where the employee reported to a physical location immediately before the RWA was in place.

The secondary indicators relate to where the employee would physically come to work if an RWA was not in place:

  • Where the employee would attend in-person meetings
  • Where the employee would receive work-related material or equipment
  • Where the employee would come in-person to receive instructions from their employer
  • The establishment that is responsible for supervising the employee
  • The establishment where the employee would report based on the nature of their duties

For example, the head office of a corporation is in Toronto, Ontario, but the IT department is based in Winnipeg, Manitoba. The IT department hires an employee living in Kamloops, BC, and establishes a full-time remote work agreement with them. Since the employee would receive instruction, equipment, and supervision from the Winnipeg office, it is reasonable to conclude that the employee is attached to the corporation’s establishment in Manitoba.

Because of this, the source deductions can be withheld based on the tax tables for Manitoba. Assuming the corporation does not have an establishment in British Columbia, this can reduce the administrative burden of the HR department as it already understands the withholding requirements in this province and doesn’t have to conduct additional research for a single employee in another province.

Although this saves the employer time and effort, for the employee, there may be a difference in tax regimes between their POE and their province or territory of residence (POR). If the POR has a lower tax rate than the POE, then too much income tax withholding will be taken, and the employee will likely get a refund on their tax return. A more serious situation occurs when the POR has a higher tax rate than the POE and too little income tax withholding is taken, resulting in income tax owing on their tax return.

To mitigate this issue, employees can request their employers increase or decrease their income tax deductions. Increasing income tax deductions is a simple process – a revised TD1 form is filled out by the employee and provided to the employer. Decreasing income tax deductions takes a little more effort. The employee must get a letter of authority from the CRA, which requires the employee to file form T1213 – Request to Reduce Tax Deductions at Source. Once the letter of authority is received, it is provided to the employer and income tax withholding is reduced.

If your business has full-time remote workers, get in touch with your accountant to see how you can effectively apply these new rules to reduce your administrative burden.

Written by: Rob Fahie

Determine the province of employment (POE):
Increasing or reducing income tax deducted at source:
Form T1213 Request to Reduce Tax Deductions at Source:

Leave a Comment