25 March 2008 External T.I. 2008-0271011E5 - Overseas Employment Tax Credit

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Eligibility for OETC.

Position: Question of fact.

Reasons: General comments provided.

								2008-027101
XXXXXXXXXX 							A. Seidel, CMA
(613) 957-2058
March 25, 2008 

Dear XXXXXXXXXX :

Re: Overseas Employment Tax Credit

This is in response to your e-mail of March 6, 2008 in which you requested our comments regarding the qualifications that an employee must meet to be entitled to claim the overseas employment tax credit ("OETC").

The particular situation outlined in your e-mail appears to relate to a specific taxpayer. As set out in Information Circular 70-6R5, it is not the practice of this Directorate to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all the relevant facts and documentation to the appropriate Tax Services Office for their views. We are prepared, however, to provide the following general comments, which may be of assistance.

To qualify for the OETC, a Canadian resident individual must:

(a) be employed by a specified employer (generally, a resident of Canada), other than for the performance of services under a prescribed international development assistance program of the Government of Canada:

(b) be employed in connection with a contract (or for the purpose of obtaining such a contract) under which the specified employer carried on business outside Canada with respect to the exploration for or exploitation of petroleum, natural gas, minerals or other similar resources, with respect to any construction, installation, agricultural or engineering project or with respect to an activity performed under contract with the United Nations; and

(c) have performed all or substantially all the employment duties in connection with the contract outside Canada.

The conditions described in (a) to (c) must exist for a period of more than six consecutive months ("qualifying period")

• within the year,
• beginning in the year and ending in a subsequent year, or
• ending in the year and beginning in a previous year.

In our view, six consecutive months means either six full months named on a calendar or a period starting from a given day in one month and ending on the day before the corresponding day of the sixth month. An individual's entitlement to the OETC will not necessarily be denied because the individual was not actually outside Canada or at the work location(s) outside Canada for the entire period. During a period of absence from a work location outside Canada, an individual may take vacation time, consult with the specified employer in Canada or perform duties of employment in Canada and still remain eligible for the OETC provided that, throughout the period, substantially all of the individual's employment duties (90% or more) are performed outside Canada in connection with a qualifying activity of the employer.

Where an individual has a break in employment such that he or she does not have six consecutive months of employment, the individual will not qualify for the OETC. This is the case even where the total period of time that the individual is employed by a specified employer over the course a year exceeds six months. For example, an individual who is employed by a specified employer for three months, has a break in employment of two months, and is then employed again by the specified employer for an additional four months would not be eligible for the OETC.

Whether "substantially all" of an individual's duties have been performed outside Canada during a qualifying period can only be determined after a full review of the relevant facts and documentation. In general, the determination will be made by comparing the actual time an individual spent performing qualifying duties (duties performed in connection with a qualifying activity) to the total time the individual spent performing all employment duties during that period.

For more information on the Overseas Employment Tax Credit, please refer to Interpretation Bulletin IT-497R4 which is available on our website at

http://www.cra-arc.gc.ca under "Forms and Publications".

We trust these comments will be of assistance.

Yours truly,

Daryl Boychuk
for Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch