30 November 1995 External T.I. 9527335 - overseas employ. tax credit -employment in CANADA

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

The impact of temporary work carried on in Canada on an employee's eligibility to claim Overseas Employment Tax Credit

Position:

Work is to be taken into account for purpose of "all or substantially all" test in subsection 122.3(1) of the Act.

Reasons:

Compilation of previous positions

		952733
XXXXXXXXXX	David R. Senécal

Attention: XXXXXXXXXX

November 24, 1995

Dear Sirs:

Re: Overseas Employment Tax Credit ("OETC")

This is in reply to your letter of October 5, 1995, wherein you request our views with respect to the eligibility of a Canadian resident individual to claim an OETC pursuant to section 122.3 of the Income Tax Act (the "Act"). More specifically, you wish to know the import of certain temporary work undertaken by the employee in Canada on the calculation of the six month "qualifying period" given the following hypothetical situation.

Facts

• The taxpayer is employed by a "specified employer" as defined in subsection 122.3(2) of the Act to work outside Canada for a period exceeding six consecutive months with respect to a qualifying activity as described in paragraph 122.3(1)(b) of the Act.
• During that period, the employee returns to Canada on a rotational basis to spend his or her days off. While in Canada, the employee normally does not work at all during the period of earned leave. The employer considers the employee to remain assigned to the foreign project during the period of rotational days off in Canada.
• Occasionally, while off on rotational leave, the employee may be required to report to work and assist the employer on a short-term basis (1-7 days) by performing some emergency task in Canada.

In our view, a distinction must be made as between the requirements of the "qualifying period" test found in the preamble of subsection 122.3(1) of the Act and those of the "all or substantially all" test found in paragraph 122.3(1)(b) thereof.

It is our position that an individual's entitlement to the OETC should not necessarily be denied simply because the individual was not actually outside Canada or at the work location(s) for the entire qualifying period. Such periods of vacation or consultation with the employer will not be considered to interrupt the qualifying period, provided that they are reasonable in light of the relevant industrial practice, the nature of the work performed and the remoteness from any established community. During a period of absence from the work location, an employee may perform duties of employment in Canada and still remain eligible for the OETC, provided that substantially all of the employment duties are performed throughout the qualifying period outside Canada.

Our position should not, however, be taken to mean that periods of vacation or days off, which are not considered to cause an interruption in the "qualifying period", are to be taken into account for the purposes of the "all or substantially all" test.

Paragraph 122.3(1)(b) of the Act requires that the employee perform "... all or substantially all the duties of the individual's employment outside Canada ...". Accordingly, where the employee performs more than 10% of his or her duties of employment while he or she is in Canada, including the fulfillment of temporary tasks unrelated to the foreign project, the employee would not meet the "all or substantially all" (90% or greater) test.

In this regard, the measure of the "all or substantially all" test is to be based on the comparison of the time actually spent in Canada by the individual performing the duties of employment for his or her employer during the qualifying period as compared with the total time the individual actually spent in the performance of employment duties in that same qualifying period. The measure is not, the time actually spent in the performance of employment duties in Canada as compared to the total number of days (including vacation and days off) judged to be included in the qualifying period.

We trust that our comments will be of assistance to you.

Yours truly,

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch