One of the factors that makes Canadian payroll so complex is that there are 14 separate jurisdictions. It’s not just the number of these, but that the rules used to determine jurisdiction are both complex and vary based on the subject matter concerned.
However, all of these rules make one assumption: that jurisdiction is mutually exclusive. For example, if Alberta provincial income tax applies, then none of the other provincial or territorial taxes do. Obviously, the jurisdiction that applies can change over time. For example, an employee, who previously reported to work in Ontario, can later start reporting to work at an employer’s establishment in a different province.
However, what happens when an employee makes such a switch within a single pay period? In the Employer’s Guide, T4001, the CRA advises that when there is more than one province of employment in a pay period, employers should use either the jurisdiction where the majority of time was spent or the last one that applies to the pay period. The last jurisdiction would be appropriate, for example, where an employee begins reporting to an employer’s establishment in a different jurisdiction.
However, with one exception, this CRA advice does not apply to the other payroll taxes levied in Quebec. The exception is for CPP/QPP purposes, where Quebec accepts that, for an employee who has relocated within a single pay period, the last province of employment applies to all earnings in that period. This extends to earnings for days in the period when the employee previously reported to work in another jurisdiction.
For all other Quebec payroll taxes (QPIP, HSF, CNT, the compensation and training tax), the actual Quebec rules around jurisdiction are based on a variety of factors, including: whether or not employees report to work at an employer’s establishment, the type of income earned and whether out-of-province employees provide services in Quebec to a 3rd party employer.
Let’s look at each of these factors in turn.
For employees who report to work at an employer’s establishment, the main factor is the type of earnings paid. For this purpose, these are two different categories of earnings. The first category we could loosely term exception pay and consists of overtime, vacation and retroactive pay and any wages not earned in respect of a single, regular pay period. For example, bonuses or commissions fall into this category, if they relate to work across more than one pay period. The second category is the default and applies to all earnings, other than the exception pay just defined.
Default category earnings are subject to the Quebec payroll taxes listed above, unless the employee reports to work mainly at an employer establishment outside the province. If an employee reports to work at employer establishments both inside and outside Quebec exactly 50-50 in a pay period, these taxes apply on these default earnings for that pay period.
Exception pay earnings are subject to the Quebec payroll taxes listed above in any pay period in which the employee ordinarily reports to work in Quebec. For example, an employee, paid bi-weekly, may ordinarily report to work at an employer establishment in Montreal every 2nd Monday. If the employee is paid overtime, Revenue Quebec claims these taxes on this overtime, even if the overtime was actually worked outside of the province and even if the employee’s other earnings in the pay period, in the default category above, are not subject to these taxes.
This applies to employees who report to work at an employer’s establishment. However, where employees do not so report, the taxes in this list normally apply based on where the employee is paid from. Just like for regular income tax source deductions, for an employee who does not report to work at an employer’s establishment and is paid from one in Quebec, Quebec claims jurisdiction.
However, where employees do not report to any employer’s establishment, and are paid from one outside of Quebec, Revenue Quebec may use the following factors in deciding whether these earnings should still be subject to the payroll taxes listed above:
- the place where the person mainly reports for work;
- the place where the person mainly performs employment duties;
- the person’s principal place of residence;
- the establishment from where the person is supervised; and
- the nature of the employment duties performed by the person.
It’s not clear how Revenue Quebec uses the last factor in the list above, but the others are straight forward indicators of geographic location. The closer these factors point to Quebec, the more likely Revenue Quebec will apply the taxes listed above.
Similarly, Quebec also reserves the right to claim jurisdiction, for the payroll taxes listed above, when out of province employers provide services in Quebec to a 3rd party employer. The services provided would have to be those normally provided by employees of the 3rd party. This would include HR and payroll outsourcing services, performed in Quebec on behalf of a Quebec client by service provider employees. For example, if a Quebec employer used a Toronto-based temporary staffing agency to supply the services of a payroll manager, to replace an employee away on maternity/parental leave, the remuneration paid by the Toronto agency to the temp staff concerned would have to be considered, for the purposes of the payroll taxes listed above, as wages paid by the Quebec employer. Note, this only applies where the services are performed in Quebec by an employee of a service provider’s establishment located in another jurisdiction. In the example, above, if the temp staff was an employee of a service provider’s establishment in Quebec, it’s the service provider, not the 3rd party client, who is on the hook for these payroll taxes.
Alan McEwen is a Vancouver Island-based HRIS/Payroll consultant and freelance writer with over 20 years’ experience in all aspects of the industry. He can be reached at firstname.lastname@example.org, (250) 228-5280 or visit www.alanrmcewen.com for more information.