28 June 2010 External T.I. 2010-0362181E5 - Overseas Employment Tax Credit

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: (1) Whether an individual who was employed for more than 6 consecutive months, worked 130 days during that period, and spent 120 of those working days outside Canada such that almost all of the duties of employment where performed during those 120 days, will qualify for the OETC if all other conditions of section 122.3 are met. (2) How to treat two separate qualifying periods of more than 6 consecutive months each, where one covers part of 2008 and 2009 and the other occurs in 2009.

Position: (1) Yes, provided that, in fact, the individual performed more than 90% of the employment duties outside Canada. (2) Provided that all of the requirements of section 122.3 are met in respect of each period, the individual could claim an OETC for the 2008 taxation year (in respect of the relevant days that fall within the 2008 calendar year) and for the 2009 taxation year (in respect of the relevant days that fall within the 2009 calendar year), subject to the limits set out in the section.

Reasons: Section 122.3 of the Act. Paragraph 3 of IT-497R4. Rooke v. The Queen (FCA) 2002 DTC 7442.

XXXXXXXXXX 								2010-036218
									S. Sivarulrasa
June 28, 2010 

Dear XXXXXXXXXX :

Re: Overseas Employment Tax Credit

This is in response to your email dated March 29, 2010 and subsequent telephone conversation (XXXXXXXXXX /Sivarulrasa) regarding the availability of the Overseas Employment Tax Credit ("OETC") in section 122.3 of the Income Tax Act ("the Act") in the scenarios described below.

(1) An individual who is resident in Canada is employed by a "specified employer" for more than six consecutive months in a "qualifying activity" as those terms are defined in section 122.3 of the Act. The individual's duties are performed during that period, within a total of 130 days. During 120 of the 130 days, the individual performed his/her duties of employment exclusively outside Canada. In addition, during those 120 days, the individual performed considerable overtime such that almost all of the employment duties were performed during those days.

(2) An individual who meets all the other requirements to qualify for the OETC under section 122.3 of the Act worked outside Canada during two separate periods: the first was from September 2008 to April 2009 and the second was from mid-June 2009 to December 31, 2009.

The situations outlined in your questions appear to deal 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 tax consequences arising from existing facts or completed transactions, please contact your local Tax Services Office. 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 summarizes the requirements to qualify for the OETC as follows:

To qualify for the OETC, an individual must:

(a) be employed by a specified employer (generally, a resident of Canada), other than for the performance of services under a prescribed international development assistance program of the Government of Canada;

(b) be employed in connection with a contract under which the specified employer carried on business outside Canada on a resource, construction, installation, agricultural, engineering or prescribed activity (or for the purpose of obtaining such a contract); and

(c) have 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) above must exist for a period of more than six consecutive months

• within the year,
• beginning in the year and ending in a subsequent year, or
• ending in the year and that began in a previous year.

This period is referred to as the qualifying period.

Paragraph 3 of IT-497R4 goes on to explain our position regarding the "all or substantially all" test as follows:

The "all or substantially all" test referred to above is considered to be met if 90% of the employment duties are performed outside Canada. The duties performed by an individual outside Canada during a qualifying period in connection with a qualifying activity of a specified employer (qualifying duties) are compared to all of the duties that the individual performed for that employer during that same period. The determination as to whether the "all or substantially all" test has been met is a question of fact that can only be determined after reviewing all the circumstances of a particular situation. However, generally, it will be made by comparing the actual time an individual spent performing the qualifying duties to the total time spent performing all duties during that same period. When the aggregate of the employment duties performed outside Canada in connection with ineligible activities and those performed in Canada in connection with any activity represent more than 10% of all the employment duties, the individual will not meet the "all or substantially all" test.

In the first scenario, we would consider the all or substantially all test to be met since the individual is employed for more than six consecutive months by a specified employer and the individual performed more than 90% of his/her employment duties outside Canada.

In the second scenario, there appears to be two periods of more than six consecutive months: the period from September 2008 to April 2009 and the period from mid-June 2009 to December 31, 2009. Therefore, provided that all of the requirements of section 122.3 are met in respect of each period, the individual could claim an OETC for the 2008 taxation year (in respect of the relevant days that fall within the 2008 calendar year) and for the 2009 taxation year (in respect of the relevant days that fall within the 2009 calendar year), subject to the limits set out in the section.

IT-497R4, which includes an example of how to do an OETC calculation, 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