Telecommuters in Canada still safe

National Post

2005-04-04



This past Tuesday, New York's highest court ruled, in a controversial 4-3
split decision, that computer programmer Thomas Huckaby, who lives in Nashville,
Tenn., but "commutes" electronically to his job in New York, had to pay state
income tax on his annual salary because he worked for a New York corporation.

"New York provides the job, New York provides the professional opportunity,
and New York should be able to tax that income, even if the employee for his own
convenience was working outside of New York state," Marc Violette, spokesman for
state Assistant Solicitor General Julie Mereson, told the media.

The decision was based on a New York state law called "the convenience of the
employer test" that taxes an employee's income if he voluntarily chooses to live
outside the state as opposed to being involuntarily transferred there by his
employer.

Could a similar legal decision affect teleworkers in Canada?

Let's assume, for example, that an over-taxed Ontarian facing a 46.4%
combined top marginal tax rate moves to Western Canada's tax haven, Alberta,
where the top marginal rate is only 39%, but continues to work for her Ontario
employer. Would Ontario have the right to tax her Alberta income?

While the prospect of extrajurisdictional taxation may be appealing to
cash-strapped provincial governments, the scenario is generally unlikely.

Under Canadian tax law, you have to pay provincial tax on your worldwide
income based on your residence in a particular province on Dec. 31 of that tax
year -- that is, the province where you have the most significant "residential
ties."

The Canada Revenue Agency considers "significant residential ties" to include
the location of your home, spouse and family. Secondary ties to a province may
include a recreational membership (such as a golf club), using that province's
hospital or medical insurance coverage, and holding a driver's license from that
province.

Late last year, the CRA was asked, under those criteria, how an individual's
province of residence would be affected when the individual has a spouse as well
as a home in another province.

The individual was living, working and paying taxes in Ontario, where he
leased an apartment in which he had shared-custody of his daughter. He also
worked roughly once a week in Quebec, but neither rented nor owned property
there. He was planning to marry a Quebec resident who would continue to live
primarily in Quebec, and he was concerned about being considered a Quebec
resident, since Quebec's tax rates are significantly higher than Ontario's.

The CRA said that a spouse would certainly be a significant residential tie
to a province, but that it would also look to the province in which he had the
"most secondary residential ties."

The upshot is that, despite his intention to marry a Quebec resident, it may
still be possible for him to be considered an Ontario resident for tax purposes,
depending on the determination of his most significant residential or secondary
ties.