Employers can now hire remotely, giving you access to top talents across Canada. However, this flexibility can lead to payroll challenges. A common question that arises when hiring someone from another province is – what TD1 form should I provide my remote employee?
In Canada, employers must have employees sign both Federal and Provincial TD1 forms and keep them on file. These forms help set up payroll correctly and create T4 slips (pay statements). These will also ensure the right amount of tax is sent to the CRA. The TD1 form will also determine the personal tax credits you can claim. More credits will mean less tax is required to be withheld.
But what happens when your business is in British Columbia but you have hired a remote employee in Alberta for example? Do you give them a TD1BC or a TD1AB?
The answer is that it depends.
As the employer, you are required to determine the POE (Province of Employment).
The POE influences which provincial TD1 form you need to use and the appropriate deductions for income tax, CPP, and EI. This blog will guide you through the process of determining an employee’s POE, including the new Canada Revenue Agency (CRA) administrative policy effective January 1, 2024.
Key factors to determine POE
- Type of Income: For non-employment income, consider the employee’s provincial residency. For employment income, look at the next two factors.
- Residency Status: Determine if the employee is a Canadian resident. If not, different rules may apply, which you can review https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/set-up-new-employee/determine-province-employment.html#static
- Employer’s Establishment: This refers to the office or location where the employee reports for work.
For small business owners, the employer’s establishment is usually the most important factor. For example, if you’re based in BC but hire someone in Alberta, you need to know whether you have an establishment in Alberta. If your Alberta employee reports to an office space you lease in Calgary, then you have an establishment in Alberta and should use the Alberta TD1 form. However, if the employee works from home and does not report to an office, their home is generally not considered an employer’s establishment.
In the case of remote work, further consideration is needed:
- Full-Time Remote Work Agreement: Even with a remote work agreement, the employee may still be connected to the employer’s establishment. This agreement can be temporary or permanent, allowing them to work fully remotely.
- Attachment to Establishment: Determine if the employee is attached to an employer’s establishment, consider factors like:
- Where they attend in-person meetings.
- Where they receive work-related instructions or materials.
- Where they receive supervision.
- The location and nature of their duties.
Using our example, if your new employee is working fully remote, you would use the TD1 form for British Columbia, since that’s where your head office is located and where payroll is processed.
Reasonable Attachment Determination
Ensure your determination of an employee’s attachment to an establishment is reasonable and fact-based. The CRA will not accept determinations made solely to avoid source deductions or payroll contributions. So be sure to document your considerations for each hire.
Multiple Establishments
If an employee is linked to multiple establishments, review all factors to determine the closest attachment. Documentation is key to support your conclusions.
POE Different from Province of Residence
If an employee’s POE differs from their province or territory of residence, tax deductions may not align correctly. Employees can request a reduction in income tax deductions by submitting either:
- Form T1213 (https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1213.html): Request to Reduce Tax Deductions at Source.
- Written Request: Sent to the Sudbury Tax Centre with supporting documents.
Once the CRA issues a letter of authority, you must:
- Keep the letter of authority with the employee’s records.
- Adjust the income tax deducted at source as specified.
By following these guidelines, you can ensure accurate payroll processing and compliance with CRA requirements, providing a smoother and more reliable experience for both you and your employees. If you need help, try this handy tool on the CRA website: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/set-up-new-employee/determine-province-employment.html#static
You can also contact Virtual Heights Accounting for guidance and advice.
This blog is for general information. Specific cases may change recommendations, which can evolve with new court rulings or CRA updates. Seek professional advice for business-specific guidance.