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What Is the Overseas Employment Tax Credit?

03/01/2012


If you work overseas for a Canadian company for a period of at least six months, you may be eligible for the Overseas Employment Tax Credit (OETC). This credit provides a significant reduction in federal tax payable for qualifying individuals on your personal income tax return.

In order to get the credit, it is necessary to complete form T626, and have your employer certify you have met the requirements to claim the OETC. This is then filed with your personal tax return.

Who Qualifies?

For most individuals the requirements that must be met to claim the OETC are fairly straight forward and are comprised of the following:


What Does Working Overseas Mean?

The OETC name is a bit of a misnomer as you do not have to travel overseas for work, you just have to be working outside of Canada. Employment in the United States and other North and South American countries qualifies, along with overseas countries.

What is the 6 Month Time Period?

During the minimum 6 consecutive months overseas, you must spend at least 90% of your time at work outside of Canada. You can come to Canada or another country for your time off. You can also work a small portion of time in Canada.

The 6 consecutive months test does not have to be met in one calendar year. For example if you start working overseas October 1, 2011 and continue to work overseas until May 30, 2012 the 6 month test has been met for both the 2011 and 2012 taxation years.

What Industries Qualify?

The third requirement requires you to be working on a project in one of the following areas:

  • Exploration for or exploitation of petroleum, natural gas, minerals or other similar resources
  • Agriculture, construction, installation or engineering
  • Work under contract with the United Nations

One area where the rules become more complex is when determining if the individual is working for a qualifying employer.

One situation that is often encountered is when an individual working for a Canadian company is transferred to an international company when they begin working overseas. The individual may still qualify for the OETC if the international company is related to a company in Canada. This can be confirmed by your employer.

Individuals working as an employee for a corporation that they own and is providing services overseas to a third corporation may also qualify. Determining if the individual qualifies requires an analysis of the individual’s specific situation and advice should be sought from a qualified tax specialist.

If you have any questions about the OETC, please contact me or your local MNP Tax advisor, and we would be happy to assist with your OETC.

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