5 April 1990 Internal T.I. 59179 F - Clarification of First Condition on Form T626 for 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.

Attention: Ms. Kobra Mehrmanesh

April 5, 1990

Dear Ms. Mehrmanesh:

This is in reply to your letter of November 29, 1989 and further to our recent telephone conversation with Ms. Jo-Anne Stewart requesting clarification of the first condition on form T626 for the Overseas Employment Tax Credit ("OETC") which reads "(1) was employed by a specified employer other than for the performance of services under a prescribed international development assistance program of Canada."

In particular, you have asked us whether this condition would be satisfied in the following situation.

1.     Private citizens (individuals) enter into contracts with the Canadian International Development Agency ("CIDA") to perform services abroad.

2.     Agriculture Canada is the executing agent for 18 of such CIDA funded projects.  As an executing agency, Agriculture Canada is required to disburse amounts, deduct income tax, issue appropriate receipts (i.e. T4 slips), etc. 

Section 3400 of the Income Tax Regulations ("Regulations") provides the meaning for the above mentioned condition and it states that each international development assistance program of CIDA that is financed with funds (other than loan assistance funds) provided under External Affairs Vote 30(a), Appropriation Act No. 3, 1977-78, or another vote providing for such financing, is prescribed to be an international development assistance program of Canada.

In our opinion, based on the information provided, the situations described above would be prescribed international development assistance programs by virtue of section 3400 of the Regulations. Accordingly, the individuals who enter into such contracts with CIDA would not qualify for the OETC in section 122.3 of the Income Tax Act.

As a matter of additional interest in this matter, we would like to offer our comments on the following requirements which must also be satisfied in order to claim an OETC under section 122.3 of the Act.

(i)     Individuals must be employees of a specified employer;  therefore, self-employed persons would not qualify for the OETC.

(ii)     The contract in connection with which an employee performs duties in a foreign country must be one under which the specified employer carried on business in the foreign country.

     In our view, the activities of CIDA and the Department of Agriculture do not constitute carrying on business. Accordingly, employees who enter into contracts with these employers to perform services abroad would not qualify for the OETC.

We trust that the above will be of assistance to you.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch