5 March 1990 Ministerial Letter 74718 F - 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.

This is in reply to your memorandum of February 13, 1990 in which you asked for our views on two different situations concerning claims for the Overseas Employment Tax Credit ("OETC").  We have outlined the information provided with respect to these situations and our comments below.

Situation 1

24(1)

Our Comments

Based on the information provided the taxpayer would be entitled to claim the OETC, pursuant to subsection 122.3(1) of the Income Tax Act (the "Act"), during 1988 because:

24(1)

As you are aware if she claims the OETC in this situation the amount of "non-business-income tax" eligible for a foreign tax credit claim will be reduced pursuant to subparagraph 126(7)(c)(vi) of the Act and for the purpose of claiming a foreign tax credit her U.S. source income will be reduced in accordance with subclause 126(1)(b)(E)(II) of the Act. Accordingly, as the OETC is a permissive deduction, it may bot be beneficial for her to make such a claim.  However, the law is quite clear and the only course of action available to the individual is to claim tax credits in the most beneficial manner under the law.

Situation 2

24(1)

Our Comments

24(1)

With this in mind you may wish to review the 1988 OETC claims made by these employees, This review could clarify:

A)      the all or substantially all issue set out in 1) above;

B)      whether the Canadian Parent or the U.S. Subsidiary is the employer;

C)      whether the Canadian Parent and/or the U.S. Subsidiary have a contract in the U.S.;

D)      whether the contract is part of a business carried on by  the Canadian Parent and/or the U.S. Subsidiary in the U.S.; and

E)      whether the business so carried on os in respect of engineering activity or some other qualified activity.

If these employees do qualify for the OETC, whether or not they are subject to tax in the U.S. is a U.S. tax problem and is dependent on the U.S Tax Authority's interpretation of U.S. tax law and the provision of the Canada-U.S. Income Tax Convention (1980), in particular Article XV thereof.

Form T626

After reviewing the form T626 submitted by 19(1) we suggest it could be improved.  In addition to the information contained thereon it may be helpful if this form required the specifies employer to certify that all or substantially all of the employees duties during the qualifying period are performed in one or more countries other than Canada and to give a description of the business carried on in these countries.  In the T626 is revised at some time in the future you may wish to consider amending the form along these lines.

We trust this will be of assistance to you.

for Director Reorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch