Principal Issues: 1. May an employee benefit from the overseas employment tax credit if his employer is not resident of Canada?
2. May an employee claim a deduction for special work site according to subsection 6(6) of the Act if his employer is not resident of Canada?
Position: 1. To benefit from the overseas employment tax credit, an employee has to be employed by a specified employer. A corporation is a specified employer only if it is a person resident in Canada or if it is a foreign affiliate of a person resident in Canada.
2. An employee may claim a deduction under subsection 6(6) of the Act even if his employer is not a resident of Canada.
Reasons: Provisions of the Act.
XXXXXXXXXX 2006-021733 Sylvie Labarre, CA September 12, 2007
Dear Sir:
Re: Special work site
This is in reply to your electronic message of December 8, 2006 in which you requested our opinion on the overseas employment credit. We apologize for the delay in responding.
You are employed by an engineering and construction company which is located in the United States and you are working XXXXXXXXXX in a remote location. A temporary camp with all facilities was built at that remote location to accommodate the workers so they can eat and sleep at the camp. You are working 8 weeks in XXXXXXXXXX followed by a two-weeks vacation taken at your Canadian residence.
You pay the airplane tickets, food and travel expenses but your employer reimburses you and adds these amounts to your normal wages.
After having consulted some forms and interpretation bulletins (TD-4, T626, IT-91R4, IT-497R4 and IT-270R3), you are requesting our opinion as to whether you have the right to the overseas employment tax credit and whether you can benefit from the deduction for employment at special work site or remote location if your employer is not Canadian.
Our comments
Your request relates to a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R5. However, if the situation relates to a completed transaction a request for the Canada Revenue Agency's views must be made to a Tax Services Office. We can, however, provide the following general comments.
To benefit from the overseas employment tax credit, you must be employed by a specified employer. For that purpose, a corporation is a specified employer only if it is a person resident in Canada or if it is a foreign affiliate of a person resident in Canada. If none of the shares of your employer are held directly or indirectly by a person resident in Canada, your employer is not a foreign affiliate of a person resident in Canada. In that case, if your employer is not a corporation resident in Canada, it will not be a specified employer and you will not be entitled to claim the overseas employment tax credit.
However, an employee who meets the conditions provided for in subsection 6(6) of the Income Tax Act may claim that an allowance or reimbursement received by the employee for specified expenses does not have to be included in his income when the employment is at a special work site or remote location even if his employer is not resident in Canada. The information that you have given us is insufficient to determine whether or not you meet all the conditions to claim such an exclusion from income and, if so, the amount to which you may be entitled. You will find an explanation of the requirements to claim the exemption under subsection 6(6) of the Income Tax Act in Interpretation Bulletin IT-91R4. To facilitate the process of claiming the exemption, the employee and the employer should complete Form TD4 if the conditions are met. However, in case the employer does not complete Form TD4, the CRA will accept to exclude the amount from the employment income only if the employee is able to prove that the requirements of subsection 6(6) of the Income Tax Act are met. Note that the conditions to claim a deduction under subsection 6(6) of the Income Tax Act (when board, lodging and transportation are paid by an employee) will not be met if, instead of paying a separate amount as an allowance or a reimbursement of the board, lodging and transportation expenses, the employer only makes an allocation of a part of the amount paid as wages to these expenses.
We trust the above comments will be of some assistance.
Yours truly,
Alain Godin, Manager
for Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch