12 January 2012 External T.I. 2011-0415991E5 - OETC Eligibility & evacuation from foreign country

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 otherwise qualify for OETC pursuant to 122.3(1) when evacuated back to Canada during the qualifying period when they are teleworknig in connection with the foreign worksite from a location in Canada, or not working in Canada but "on call" to return to the foreign worksite at the request of the employer.

Position: Questions of fact.

Reasons: Eligibility for the OETC depends on whether all or substantially all of the duties of employment are performed by the employee outside of Canada.

XXXXXXXXXX
					2011-041599
					Eli Kae Moore

January 12, 2012

Dear XXXXXXXXXX :

Re: Technical Interpretation Request: - Section 122.3 and Evacuated Employees

We are writing in response to your letter of July 27, 2011, and the subsequent phone conversation (Moore/Hartley-Robinson) on December 19, 2011, regarding the application of section 122.3 of the Income Tax Act.

In particular, you have described a situation in which an employer has chosen to evacuate an employee from an overseas worksite back to Canada due to political and civil unrest in the foreign jurisdiction. You have asked whether an evacuated employee's eligibility for the Overseas Employment Tax Credit ("OETC") pursuant to subsection 122.3(1) of the Act would be affected by the evacuation and resulting return to Canada where the employer continues to compensate the employee for either performing the regular duties of employment by teleworking from a Canadian location, or for not working in Canada except to remain "on call" indefinitely in contemplation of a future return to the foreign worksite, at the employer's request, to resume the performance of the employment duties.

Our Comments:

In general, an individual resident in Canada in a taxation year may be eligible for the OETC where the criteria outlined in subsection 122.3(1) are satisfied, including a requirement that the individual has performed all or substantially all of the duties of the particular employment outside of Canada during a qualifying period of more than six consecutive months beginning prior to the end of the taxation year, and where the period includes a part of that year. The determination of whether this performance requirement is satisfied is a question to be determined based on the facts surrounding the individual's particular employment situation.

As outlined in paragraph 3 of our Interpretation Bulletin IT-497R4, Overseas Employment Tax Credit, the Canada Revenue Agency is of the view that for the purpose of this determination, "all or substantially all" of the duties of an individual's employment are performed outside of Canada where at least 90% of those duties are performed outside of Canada. In this regard, the determination will generally be made by comparing the time spent performing the duties of employment either inside or outside of Canada. In addition, whereas a particular activity may be performed in connection with an employment contract with an employer who carries on business outside of Canada, for purposes of this determination the CRA is generally of the view that the physical location of an employee performing an employment activity is of importance in determining where employment duties are performed inside.

On this basis, it would seem reasonable to expect that the percentage of an employee's time spent performing duties of employment inside Canada would increase where the duties of employment are performed by teleworking from a Canadian worksite. This may ultimately result in the loss of an individual's OETC where more than 10% of the time spent by the individual in performing the employment duties occurs inside of Canada during the above-mentioned qualifying period.

By contrast, in a situation where an individual is not working and who remains "on call" and continues to be compensated by the employer following an evacuation back to Canada, paragraph 11 of IT-497R4 provides that the entitlement to an OETC will not necessarily be denied because the individual was not actually outside Canada or at the work location outside Canada for the entire qualifying period. In addition, the CRA has previously expressed the view that standby time (i.e., time during which an employee was required to be available for work, but was not requested to work) should not generally be taken into consideration in calculating the percentage of employment duties performed inside or outside of a particular geographical boundary.

As such, while an employee who remains "on call" following an evacuation to Canada may be eligible for the OETC provided that throughout the qualifying period substantially all of the employment duties are performed outside Canada, the question of whether a particular employment duty is performed, and whether it is performed inside or outside of Canada require a factual determination that can only be made for a particular taxpayer after all relevant facts have been reviewed.

We trust that our comments are of assistance.

Yours truly,

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