Federal (Income Tax Act and Regulations): A foreign employer with employees working in Canada risks creating a permanent establishment (PE) in Canada, which would subject the foreign employer to Canadian corporate income tax on business income attributable to that PE. The definition of PE for federal income tax purposes derives from Income Tax Regulations s.400(2) (C.R.C., c. 945): a PE is a fixed place of business of the corporation, including an office, a branch, a mine, a factory, a workshop, or a warehouse. A corporation is also deemed to have a PE where it carries on business through an employee or agent established in a location who has general authority to contract on behalf of the corporation or who maintains employer-owned merchandise inventory. Independent agents, brokers, or offices used solely for purchasing merchandise do not create a deemed PE.

Obligation absent a PE: regardless of whether a PE is created, a foreign employer whose employees perform duties in Canada is subject to payroll withholding obligations. Income Tax Regulations s.102 requires employers to deduct and remit Canadian income tax on remuneration attributable to duties performed in Canada, even where the employer is non-resident. CPP and EI deductions also apply to employment income earned in Canada. There is no minimum threshold; a single day of Canadian work can trigger the withholding obligation in principle.

Treaty relief (Canada-US Tax Convention, Art. V): Under the Canada-United States Tax Convention (as consolidated to 1997), Article V defines PE as a fixed place of business through which the business of a resident of a Contracting State is wholly or partly carried on. PE examples include a place of management, a branch, an office, a factory, and a workshop. Activities excluded from PE include use of facilities solely for storage, display, or delivery of goods; maintenance of a stock of goods for storage or processing; purchasing goods or collecting information; and advertising and preparatory or auxiliary activities. A person habitually exercising authority to conclude contracts on behalf of the enterprise creates a dependent-agent PE. Independent agents acting in the ordinary course of their business do not. Treaty relief under Article XV (employment income) exempts a US-resident employee's Canadian remuneration from Canadian tax if: (a) the remuneration does not exceed C$10,000 in the calendar year, or (b) the employee is present in Canada for fewer than 183 days in any 12-month period and the remuneration is not paid by or on behalf of a Canadian resident employer and is not borne by a PE in Canada.

OECD 2025 Update (remote work PE analysis): The OECD November 2025 update to the Model Tax Convention introduces a revised framework for remote work under Article 5. A temporal test applies first: if an employee works from a home office or other non-company location for less than 50% of total working time over any 12-month period, no PE is generally created solely on that basis. If the 50% threshold is met, a commercial reason test applies: whether the employer has a genuine business reason for operating in that jurisdiction. Merely retaining an employee or reducing office costs does not satisfy the commercial reason test. This OECD framework is persuasive for interpreting Canada-treaty PE provisions but does not directly amend the Canada-US Treaty, which requires separate renegotiation.

EOR mitigation: when a foreign employer engages workers through a Canadian EOR, the EOR is the registered employer of record, holds the Canadian payroll account, and remits CPP/EI and income tax as a Canadian entity. The foreign employer does not itself become a Canadian employer for payroll tax purposes. Whether the EOR arrangement eliminates PE risk depends on whether the employees, in substance, are exercising contract authority or carrying on the foreign employer's business in Canada in a way that creates a fixed place or dependent-agent PE. A properly structured EOR arrangement where the EOR controls employment terms and the foreign employer gives only operational instructions materially reduces PE exposure, but it does not eliminate the risk where workers are habitually concluding contracts on behalf of the foreign enterprise. Foreign employers with Canadian remote workers should obtain specific tax advice, especially if employees have title or authority to bind the foreign business.

Federal: Income Tax Act s. 153 requires every person paying salary, wages, or other remuneration to deduct or withhold income tax in accordance with prescribed rules and to remit the withheld amounts to the Receiver General (CRA) at prescribed times. The withholding amount is determined by the employee's completed federal TD1 form (Personal Tax Credits Return) and CRA's published payroll deductions tables (T4032, by province). For provinces other than Quebec, CRA administers both federal and provincial income tax withholding through the same T4032 table; the employer remits a single combined amount to CRA.

Quebec: Quebec administers its own provincial income tax separately from CRA. Employers with employees working in Quebec must withhold Quebec income tax using Revenu Quebec's Source Deductions Return form (TP-1015.3-V), which employees complete on the day they take up employment. The TP-1015.3-V is the Quebec equivalent of the federal TD1; it allows employees to claim provincial personal tax credits. Revenu Quebec publishes its own source deduction tables (TP-1015.TI-V) for calculating Quebec income tax withholding. Quebec employers remit withheld Quebec income tax to Revenu Quebec, not to CRA. For federal income tax on Quebec employees, CRA's T4032-QC table is used (covering federal income tax and EI deductions; CPP and provincial income tax are handled separately by Revenu Quebec using QPP and TP-1015.3-V).

Other provinces: British Columbia, Alberta, and Ontario all follow the federal CRA system. Employers withhold combined federal-and-provincial income tax using the province-specific T4032 table and remit the total to CRA. No separate provincial withholding agency or form is required.

Federal: Under Canada Labour Code s. 253.2, federally regulated employers must provide each new employee with a written employment statement within 30 days of hire. The statement must include the information prescribed by the Canada Labour Standards Regulations (s. 3.1), covering the names of the parties, job title and duties, place of work, commencement date, hours of work, wage or salary rate, overtime rate, pay day frequency, and mandatory deductions. A written contract is not itself mandated, but a written statement is. The statement must be updated within 30 days of any material change.

Ontario: Under the ESA 2000 (as amended effective July 1, 2025), employers with 25 or more employees must provide each new employee with specified written employment information before the first day of work (or as soon as reasonably practicable thereafter). Required information includes the employer legal name, contact information, anticipated work location, starting wage rate, pay period and pay day, and anticipated initial hours. Ontario does not require a written employment contract per se; terms may be oral, but all terms must meet or exceed ESA minimum standards. Any clause purporting to contract out of ESA minimums is void.

Quebec: No provincial statute mandates a written employment contract. However, the Charter of the French Language (C-11, s. 41) requires that any individual employment contract entered into in writing must be drawn up in French. A non-adhesion contract may be drafted in another language at the express mutual wish of both parties after reviewing the French version. The Act respecting labour standards (N-1.1) sets the floor for all working conditions regardless of contract form or language.

British Columbia: No statutory requirement for a written employment contract in general. Domestic workers are the exception and require a written agreement. Employers should communicate specific terms and conditions in writing. All employment agreements must meet ESA minimum standards; terms below those minimums are void.

Alberta: No statutory requirement for a written employment contract. Employers are advised to put terms in writing to avoid misunderstanding. The Employment Standards Code sets minimum standards that apply regardless of what the contract says; any term below the statutory floor is unenforceable.