Determining province of employment when paying retiring allowance

The rules regarding province of employment do not apply to retiring allowances, or other taxable income subject to the lump sum method
By Alan McEwen
|Canadian Payroll Reporter|Last Updated: 10/22/2012

Everyone knows the importance of the province of employment. Getting this right is fundamental to correctly calculating income tax source deductions, since these are in part based on income tax legislation specific to the province concerned. And, since the province of employment must be reported on T4s, reporting income for the wrong province is a failure to file this return as required.

The basic province of employment rules are quite well known. For employees who report to work at an employer's permanent establishment, the geographic location of that establishment determines the province of employment. Where employees don't report to work at an employer's permanent establishment, the province of employment is determined by the geographic location of the employer's permanent establishment from which employees are paid.

“Report to work” means physically presenting oneself, ready to start work. An employee who works out of a home office may not “report to work” in that sense. Where an employee reports to work may also be different than where employment services are performed. For example, some types of employees report to an office, from which they are then dispatched to various client locations. So long as these client locations are not permanent establishments of the employer, it's the place where employees get dispatched that counts — not where they actually end up performing services.