How the New CRA Administrative Policy on Remote Workers Affects SR&ED

In January 2024, the Canada Revenue Agency (CRA) introduced a new administrative policy to determine the province of employment (POE) for remote workers. This policy update has significant implications for payroll deductions, but many businesses are left wondering: Does it affect SR&ED claims?

Understanding how the CRA defines an employer’s establishment is crucial, especially for companies engaged in Scientific Research and Experimental Development (SR&ED). The POE determination affects payroll deductions such as CPP/QPP, EI, and provincial tax withholding. However, despite these changes, the CRA has confirmed that this policy does not alter the treatment of out-of-province expenditures in the SR&ED program.

This article will break down the key factors of the new remote work policy, clarify its impact on SR&ED claims, and provide strategies to maximize your Investment Tax Credits (ITCs) when employing remote workers.

Background

In January 2024, the CRA announced a new administrative policy that helps determine the province of employment (POE) for remote workers: Determine the province of employment (POE) – Canada.ca. Some of the key factors in determining the province of employment include:

• The type of income;
• The residency status of the employee; and,
• The establishment of the employer, where the employee reports for work.

The CRA defines the employer’s establishment as:

Any place or premises in Canada that is owned, leased or rented by this employer where employees report to work or from which employees are paid. For purposes of the POE, this does not need to be a permanent physical location ¹.

Previously, the employee’s home office was not considered an employer’s establishment. However, in 2024, this determination was changed when a full-time remote work agreement was made. This would allow the employee to be considered “reasonably attached to an establishment of the employer” ².

Relation of the New Remote Work Policy to SR&ED

Despite changes to the POE rules, the new CRA administrative policy does not affect how out-of-province expenditures are treated in the SR&ED program. As per the CRA website:

The CRA administrative policy only applies for determining the POE for the purpose of CPP/QPP, EI, QPIP and income tax deductions ³.

Currently, in the SR&ED program, employees or contractors who work in-person or remotely from a company’s established office or location within the province are considered in-province expenditures and contribute to the company’s provincial Investment Tax Credits (ITCs). However, remote workers outside the province, even working full-time for the company, are classified as out-of-province expenditures, reducing the company’s overall provincial ITCs. The CRA has stated that this policy will not change for the SR&ED program and that remote workers outside an establishment province will remain ineligible for provincial ITCs for SR&ED; only employees in a province where the company has a permanent address and work was performed can contribute to provincial ITCs.

Maximizing SR&ED ITCs for Remote Workers

Although out-of-province remote worker expenditures (employees or contractors) cannot be used for provincial ITCs, they can be used to increase federal ITCs. To maximize ITCs, ensure all Canadian salary and contractor costs are included in federal ITCs, manually remove out-of-province costs before calculating provincial ITCs, and check if your tax software requires a manual override for in-province expenditures.

SR&ED Claims for Multi-Province Establishments

If your company has permanent establishments in more than one province, you can file an SR&ED claim in multiple provinces. However, this process can be complex, as you must choose a primary province for filing (which can significantly impact your refund), and any primary provincial ITCs must be subtracted before filing in another province. Filing SR&ED claims across multiple provinces can be cumbersome, so working with a knowledgeable SR&ED consultant can help maximize your refund and ensure that any out-of-province expenditures have been removed correctly.

Conclusion

While the CRA’s new administrative policy changes the definition of an employer’s establishment for POE purposes, it does not impact the SR&ED program’s treatment of out-of-province expenditures. Companies should continue to track and categorize remote worker expenses carefully to ensure compliance and maximize their ITCs.

 

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