11 May 2009 External T.I. 2009-0312641E5 - 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 employment periods with separate employers can be considered part of the same qualifying period if there is a break between employments

Position: No

	2009-031264
XXXXXXXXXX 		A. Seidel
(613) 957-2058
May 11, 2009

Dear XXXXXXXXXX :

Re: Overseas Employment Tax Credit

This is in reply to your e-mail of March 5, 2009 wherein you requested our views as to whether, based upon the facts described below, an individual would be entitled to the overseas employment tax credit ("OETC") described in section 122.3 of the Income Tax Act (the "Act").

• An individual is employed by a specified employer for more than six consecutive months in a particular taxation year (e.g. January 1 to August 31). The individual performed all or substantially all of the duties of his/her employment outside Canada in connection with contracts under which the specified employer carried on business outside of Canada with respect to one or more of the activities described in subparagraphs 122.3(1)(b)(i) or (ii) of the Act (the "First Employment");
• The individual's First Employment is terminated and the individual remains unemployed for several months;
• The individual is employed for a period of one month at the end of the particular taxation year with a new specified employer and performs all or substantially all of the duties of his/her employment outside Canada in connection with a contract under which the new specified employer carried on business outside of Canada with respect to one or more of the activities described in subparagraphs 122.3(1)(b)(i) or (ii) of the Act (the "Second Employment");
• The duration of the individual's Second Employment is less than six consecutive months.

The First Employment described above details a situation where all of the requirements of section 122.3 of the Act are met and the employee qualifies for the OETC. The Second Employment described above details a situation where the employment, by itself, would satisfy all of the requirements of section 122.3 except for the requirement that the employment lasts for a period of more than 6 consecutive months. You query whether the First Employment and the Second Employment can be viewed as one employment such that the individual's entire employment income for the taxation year qualifies for the OETC.

Our Comments

It is not this Directorate's practice to comment on completed transactions that involve a specific taxpayer. The review of completed transactions is the responsibility of our local tax services offices. We are, however, prepared to provide the following general comments which we hope will be of some assistance.

An individual who is resident in Canada may be entitled to claim the OETC in respect of qualifying income from employment outside Canada where the individual:

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

(b) is employed in connection with a contract under which a specified employer carried on business outside Canada with respect to the exploration for or exploitation of petroleum, natural gas, minerals or other similar resources or any construction, installation, agricultural or engineering activity (a "qualifying activity"); and

(c) performed all or substantially all his/her 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 (the "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.

"Specified employer" is defined in subsection 122.3(2) of the Act to include a corporation that is resident in Canada.

Where an individual has more than one employment in a taxation year, it is a question of fact whether the individual was employed "throughout any period of more than 6 consecutive months". In John Rooke v. Her Majesty the Queen, 2002 DTC 7442, the Federal Court of Appeal held that the qualifying period requirement can be met where the work done in the period relates to more than one contract of the employer as long as the employee was employed throughout the entire qualifying period under consideration and each of the contracts otherwise met the requirements for the OETC.

It is the Canada Revenue Agency's position that the termination of an employment terminates a "qualifying period" for an individual except where the individual has consecutive employments that each satisfies the requirements (other than the six consecutive month requirement) for the OETC. In this respect, an individual would not be considered to have consecutive employments if there is a break between employments in the manner described in your e-mail. In such a case, the individual would have to examine each of the two employments separately to determine whether he/she qualifies for the OETC.

Yours truly,

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