4 January 2008 External T.I. 2007-0262351E5 - 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: Whether a particular employee satisfies the "qualifying period" test in section 122.3 of the Act.

Position: Question of fact.

Reasons: The TSO will need to review where the actual employment duties were performed to determine whether this requirement is satisfied.

									2007-026235
XXXXXXXXXX 							A. Seidel, CMA
(613) 957-2058
January 4, 2008 

Dear XXXXXXXXXX :

Re: Overseas Employment Tax Credit

This is in response to your e-mail of December 10, 2007 in which you requested our comments regarding the qualifications that an employee must meet to be entitled to claim the overseas employment tax credit ("OETC") in section 122.3 of the Income Tax Act (the "Act").

The situation outlined in your letter relates to the employment contract of a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Where the employment contract of a specific taxpayer is in respect of a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments.

An individual who is resident in Canada may be entitled to claim the OETC for qualifying income from employment outside Canada. 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 (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 ("qualifying activity"); 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) must exist for a period ("qualifying 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.

In our view, six consecutive months means either six entire months named on a calendar or a period starting from a given day in one month and ending on the day before the corresponding day of the sixth month. In addition, an individual's entitlement to the OETC will not necessarily be denied because the individual was not actually outside Canada or at the work location(s) outside Canada for the entire qualifying period. During a period of absence from a work location outside Canada, an individual may take vacation time, consult with the specified employer in Canada or perform duties of employment in Canada and still remain eligible for the OETC, provided that throughout the qualifying period substantially all of the individual's employment duties (90% or more) are performed outside Canada in connection with a qualifying activity of the employer.

Whether "substantially all" of an individual's duties have been performed outside Canada during a qualifying period can only be determined after a full review of the relevant facts and documentation. In general, the determination will be made by comparing the actual time an individual spent performing qualifying duties (duties performed in connection with a qualifying activity) to the total time the individual spent performing all duties during that period. As indicated above, this determination is the responsibility of the local tax services office. For more information on the Overseas Employment Tax Credit, please refer to Interpretation Bulletin IT-497R4.

We trust these comments will be of assistance.

Yours truly,

Daryl Boychuk
for Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch