21 January 2010 External T.I. 2009-0343221E5 - Overseas Employment Tax Credit (OETC)

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: Whether employees eligible for OETC

Position: No

Reasons: The employer is not engaged in a qualifying activity

XXXXXXXXXX 									2009-034322
S. Sivarulrasa
January 21, 2010 

Dear XXXXXXXXXX :

Re: Overseas Employment Tax Credit

This is in response to your letter and email dated October 5, 2009 regarding the eligibility of certain individuals to claim the Overseas Employment Tax Credit ("OETC") provided in section 122.3 of the Income Tax Act ("the Act") in the circumstances described below:

• A corporation resident in Canada (the "company") has entered into a contract with the Government of Canada to provide certain defence-related services abroad.
• The services to be performed by the company are in support of a United Nations ("UN") initiative in which Canada is participating along with many other UN member states. From the information supplied, it appears that there is no contract between the Government of Canada and the UN; rather, the UN called on its member states to contribute to the initiative through a Security Council resolution.
• Certain employees of the company who are residents of Canada will perform the services abroad on a rotational basis for varying periods of time.

The situation outlined in your email deals with specific taxpayers and existing facts and circumstances. It is not this Directorate's practice to comment on existing facts and circumstances relating to specific taxpayers other than through an advance income tax ruling. For more details on our approach to rulings and interpretations, please see Information Circular IC 70-6R5, "Advance Income Tax Rulings", which is available through the Canada Revenue Agency ("CRA") website at www.cra-arc.gc.ca. Although we cannot comment directly on your specific situation, we are prepared to provide the following general comments.

Our Comments

Interpretation Bulletin IT-497R4 dated May 14, 2004, explains the requirements to qualify for the OETC. One of these requirements is that all or substantially all of the individual's employment duties must be performed outside Canada for a specified employer for a specified period of time in connection with a contract under which the employer carried on business outside Canada with respect to a qualifying activity. The meaning of "qualifying activity" is explained in paragraph 6 of IT-497R4:

For OETC purposes, a qualifying activity refers to the qualifying activity of the specified employer and not that of the employee. A qualifying activity includes:

(a) the exploration for or the exploitation of petroleum, natural gas, minerals or similar resources;

(b) a construction, installation, agricultural or engineering activity; or

(c) any prescribed activity.

It is our understanding that the activities to be performed do not involve the exploration for or the exploitation of petroleum, natural gas, minerals or similar resources; nor do they involve a construction, installation, agricultural or engineering activity. Accordingly, an employee of the company will not be eligible for the OETC unless, at a minimum, the company is engaged in an activity that is a "prescribed activity".

A prescribed activity is defined in section 6000 of the Income Tax Regulations as an activity performed under contract with the United Nations. This means that the employer must have a contract with the UN or be performing services under a contract that another entity has with the UN (i.e., a subcontract). In the latter case, i.e. where the employer is subcontracting with another entity that has a contract with the UN, it is expected that the employer would be performing activities that the entity would otherwise be required to perform under the contract with the UN.

In situation described above, it does not appear that the Government of Canada has entered into a contract with the UN and, therefore, the company does not meet the requirement that it be engaged in a qualifying activity. In our view, the fact that the Government of Canada is participating in an UN-sanctioned mission in a foreign country pursuant to a Security Council Resolution would not, in itself, be sufficient to conclude that the company is engaged in a qualifying activity.

IT-497R4 is available on our website at www.cra-arc.gc.ca. under the heading "Forms and Publications".

We trust our comments are of some assistance.

Yours truly,

Daryl Boychuk
Manager, International Section I
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch