28 July 2011 External T.I. 2011-0401611E5 - 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 an individual is eligible for the OETC.

Position: Question of fact.

Reasons: Insufficient information given by the taxpayer to determine eligibility for the OETC. A detailed analysis would be necessary.

XXXXXXXXXX
									2011-040161
									K. Podor

July 28, 2011

Dear XXXXXXXXXX :

Re: Overseas Employment Tax Credit (OETC)

This is in response to your email dated April 5, 2011, wherein you requested clarification of your eligibility for the overseas employment tax credit (OETC).

You provide services to an Alberta corporation (the "corporation"). The corporation employs five employees; however, not all of the five employees work overseas. On this basis, the corporation informed you that you are ineligible for the OETC. You are requesting confirmation of your eligibility based on your personal situation.

Comments:

The facts provided in your correspondence indicate that you may be self-employed. For OETC purposes, an individual is not eligible for a deduction from tax in respect of self-employed income.

For assistance in determining the nature of your relationship with the corporation, we refer you to our Guide RC4110, Employee or Self-employed?, which can be found on the Canada Revenue Agency (CRA) website at www.cra.gc.ca under Forms and Publications.

If you are an employee of the corporation, the following comments are relevant. In order to qualify for the OETC, the conditions described in Interpretation Bulletin (IT)-497R4, Overseas Employment Tax Credit, must be met.

An individual, who is resident in Canada, is entitled to claim the OETC for qualifying income from employment in circumstances where the individual:

(a) was employed by a specified employer (see definition below), other than for the performance of services under a prescribed international development assistance program of the Government of Canada;
(b) was 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) performed all or substantially all the employment duties (done in connection with a contract described in (b) above) outside Canada.

The conditions described in (a) to (c) must exist for a period of more than six consecutive months. Except as provided in paragraph 8 of IT-497R4, the qualifying activities mentioned in (b) above must be those of the specified employer and not that of the employee.

For the purposes of the OETC, a "specified employer" is described in paragraph 13 of IT-497R4. You indicated that you provide services to a corporation. A corporation is a specified employer only if it is a person resident in Canada or if it is a foreign affiliate of a person resident in Canada.

Even if the requirements described in (a) to (c) above have been met, an individual's income from employment will not qualify for the OETC if all of the following criteria are met:

1) the employer carries on a business of providing services and does not employ in the business throughout the year more than five full-time employees;
2) the individual does not deal at arm's length with the employer or is a specified shareholder of the employer; and
3) but for the existence of the employer, the individual would reasonably be regarded as an employee of a person that is not a specified employer.

A "specified shareholder" of the corporation is a person who directly or indirectly owns, at any time in the year, not less than 10% of the issued shares of any class of the capital stock of the corporation or of any corporation that is related to the corporation.

In the situation described in your email, the corporation does not employ in the business throughout the year more than five full-time employees. It is a question of fact whether the remaining two criteria apply.

If all three criteria are met, your employment income will not qualify for the OETC. In determining the remaining criteria, the CRA will take into consideration all the relevant facts and circumstances including:

• the nature of the relationship between you, the corporation and the payer,
• details regarding the corporation's business carried on outside of Canada,
• the nature of the services you provide to the corporation and the payer,
• the level of control the payer has over you,
• the degree of financial risk you have assumed; and,
• other relevant facts including contracts and supporting documentation.

As you may have noted, the information you have provided in your email is insufficient to determine whether you are eligible to claim the OETC. We recommend that you contact the International Tax Services Office (ITSO) at 613-952-3741 (collect calls accepted) with additional information related to your situation so that an analysis of all the relevant facts may be completed.

We trust these comments are helpful.

Steve Fron, CA
Acting Manager
International and Trust Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch