Working remotely from another province: What are the legal consequences?

COVID-19 has drastically changed the way employers organize their workforces. Many employees are working from remote locations in an effort to socially distance and stay safe. For some, this means working from home, and for others, this might mean working from the cabin.

What happens when an employee’s remote workplace is across a provincial border? Does this have tax implications? What workplace health and safety laws apply? What workplace standard laws apply?

In this article, we explore some of the (perhaps unforeseen) legal implications of remote workplaces across provincial borders.

Are there tax consequences when an employee works from another province?

Corporate Tax

Corporate tax rates differ from province to province. Provincial tax laws typically state that when a corporation has a “permanent establishment” in the province at any time in a year, the corporation must pay taxes to that province for the work done there.

Is a remote workplace a “permanent establishment” under these laws? Not usually, but sometimes, yes.

Typically, a corporation must own or rent space in a province and operate from that space in order for it to have a “permanent establishment.” But there are some exceptions when an agent of the corporation carries on business in that place and has “general authority to contract” for that employer. 

This means that in some circumstances, an employer might unknowingly set themselves up for tax liabilities in other provinces where they have remote employees there. This will not usually be the case, but it might be where the employer has employees with general authority to enter binding contracts who are conducting business from their home or cabin in that other province.

Payroll Deductions

Employers typically must deduct or withhold taxes from an employee’s pay and remit those taxes to the government. Each province determines its own tax rates on employment, so an employer’s withholding tax obligations may change depending on the location from which their employees work. 

What taxes should a Manitoba employer withhold from an employee working in Ontario? Manitoba’s rates, or Ontario’s rates?

This depends on whether the employee is “reporting for work” at an establishment of the employer in Ontario or Manitoba.

An employer typically only has an “establishment” somewhere that they own or lease. A home office could not usually be considered a permanent establishment of the employer. To this end, the Canadian Revenue Agency (CRA) has issued an opinion stating that “a teleworker with a home office could not be considered as reporting for work at an establishment of his employer when performing his duties there.”

Furthermore, where an employee never reports to an establishment of their employer throughout the year, the Income Tax Regulations presume that they report to the office from which they get paid. In that case, the employer’s withholding tax obligations are determined by the laws of the province in which the employer’s office is situated.

Tax Deduction: Expenses for Home Offices

Minister of Finance Chrystia Freeland presented the 2020 Federal Fall Economic Statement on November 30, 2020. This statement included an important update from the Canada Revenue Agency regarding the home office expense deduction.

In short, the CRA will generally allow employees working from home in 2020 due to COVID-19 to claim up to $400 in-home office expenses. The amount claimable is based on the amount of time the employee worked from home.

A significant aspect of this update is that the CRA will “generally” not request form T2200 from these employees, meaning that the employee does not have to have tracked their expenses in great detail and the employer will not have to sign off on those expenses. The purpose is to simplify the tax filing process for employers and employees alike to ensure that taxpayers can access deductions they are entitled to as a result of working from home.

This is particularly good news for employers with a very large amount of employees who are working from home as a result of COVID-19.

What employment standards laws apply to remote work in other provinces?

Employment standards legislation varies from province to province.

Some jurisdictions have laws that explain what happens when an employee works both inside and outside the province. For example, Ontario’s Employment Standards Act says it applies to employees whose work is performed in Ontario, or to employees who work both inside and outside the province.

Manitoba’s Employment Standards Code does not have similar provisions, so it becomes a question of context and contract. An employee’s contract might determine the issue. If that contract is silent, courts have provided a list of factors to consider which laws have the “closest and most substantial connection” to the employment contract:

• Where is the work done?
• Is the out-of-province work incidental to the employment relationship?
• Where is the employer based?
• Where does wage payment occur?
• Where was the contract signed?
• Where is the employee normally resident?

What workplace health and safety laws govern employees’ remote work in other provinces?

Employers should know that their duty to maintain a safe workplace does not end when their employees work remotely from their homes or cabins. Employers should consider establishing a work-from-home safety policy that addresses factors such as ergonomic considerations, safe workplace practices, and expected hours of work.

As discussed above, the workplace health and safety laws that apply to a remote workplace are the laws with the closest connection to the employment contract. Whether Manitoba laws apply to a remote workplace in Ontario will depend on those factors above.

When it comes to accidents happening on the job, The Workers Compensation Act of Manitoba applies to some accidents occurring out the province, but this depends on whether the employee works outside of the province for six months or more.

Conclusions

The shift to a remote workforce may have unintended legal consequences for employers. If you have questions about the implications of your remote workforce, our team is here to help.