10 November 1997 External T.I. 9713715 - OETC AND FTC

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:

Whether the claim for the combined amount of OETC and FTC can be in excess of the amount of foreign non-business income tax paid

Position:

Yes

Reasons:

There is no requirement that foreign tax has to be paid before OETC can be claimed. So it follows that the combined claim for OETC and FTC can exceed foreign tax paid

971371
XXXXXXXXXX S. Leung

Attention: XXXXXXXXXX

November 10, 1997

Dear Sirs:

Re: Overseas Employment Tax Credit and
Foreign Tax Credit

We are writing in response to your facsimile of May 23, 1997 in which you requested our comments on whether it is an appropriate result where the combined amount of overseas employment tax credit (OETC) and foreign tax credit (FTC) claimed by a taxpayer for a particular taxation year is in excess of the amount of foreign non-business income tax paid by the taxpayer for that year.

Our Comments

It should be noted that an OETC is a tax credit allowed to a taxpayer against his Canadian income tax payable on certain foreign employment income earned by him. It represents relief from Canadian income taxation on certain foreign employment income which was previously provided by a deduction from income under former subsections 8(10) and 8(11) of the Income Tax Act (the "Act"). It applies whether or not any foreign income tax has been paid on such income, as long as all the conditions referred to in subsection 122.3(1) of the Act have been met. As the amount of the OETC claimed by a taxpayer can be greater than the amount of the foreign income tax paid by him, it follows that the combined claim for the OETC and the FTC can exceed the amount of the foreign income tax paid.

Where an OETC is claimed and a foreign income tax has been paid in respect of foreign employment income, the foreign tax credit provisions of the Act operate so as not to allow the FTC for that portion of the foreign income tax paid on foreign employment income in respect of which an OETC has been claimed. This is reasonable because if a portion of the foreign employment income is "not taxable" in Canada as a result of the OETC, foreign income tax paid on that portion of the foreign employment income should not be creditable. As a result, the FTC so computed will never exceed that portion of the foreign income tax paid on foreign employment income in respect of which an OETC has not been claimed. In the example you provided, that portion of the foreign income tax is $8,710.

We trust you will find the above explanation to be of assistance.

Yours truly,

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