Tax Advisory - Overseas Employment Tax Credit

If you are working overseas, the one thing you should not have to worry about is your taxes. The international tax team of Collins Barrow can help you put your mind at ease. We have been assisting overseas workers for more than 25 years.

The Overseas Employment Tax Credit is a tax reduction of up to 80% on the first $100,000 of income earned outside of Canada. It is available to employees if they are employed by a Canadian or Canadian affiliated company. The employer must have a contract (or be seeking a contract) to carry on business outside Canada in one of the following areas: Exploration for, or exploitation of, petroleum, natural gas, minerals or other similar resources, construction, installation, agricultural or engineering activities.

The employee must perform 90% of their duties outside of Canada for a period of at least 6 consecutive months. The employer will provide the employee with a signed form (T626) which indicates that both the employer and the employee meet the tests required to qualify for the overseas employment tax credit.

We strive to make the process as easy and understandable as possible. Our goal is to ensure you are receiving the maximum benefits possible under the tax legislation.

Thinking Global

As Canadians continue to think and work globally, the implications of taxation are inevitable. Let us help you better understand the implications of the overseas employment tax credit and how you can minimize potential tax liabilities while working in the global marketplace.

Employees

Employees of Canadian companies, or Canadian affiliate companies, may be eligible for the overseas employment tax credit. Employees of companies not connected to Canada will not qualify for the overseas employment tax credit, but a foreign tax credit may be available.

Employees who qualify for the overseas tax credit should give special consideration to the following areas:

• Is it beneficial to contribute to an RRSP?
• Is it more beneficial to claim only a foreign tax credit?
• How does Alternate Minimum Tax fit into the equation?

Contractors

Subcontractors are not eligible for the overseas employment tax credit. This credit is only available for employees. However, if there is a contract between your corporation and an offshore company, then your company can hire you as an employee. As an employee of your Canadian company, you may qualify for the overseas employment tax credit. Incorporating a company for this purpose requires specialized taxation advice, which Collins Barrow can provide.

Foreign Tax Credits

Certain countries will require employees to pay tax on earnings made in their country. Canada will generally allow a foreign tax credit to reduce your Canadian taxes. The reduction in Canadian taxes will relate to the amount of taxes paid to the foreign country. However, this foreign tax credit may be reduced if you are also claiming the overseas tax credit. We at Collins Barrow can calculate the maximum benefit for you.

Residency

If an employee does not qualify for the overseas employment tax credit an extreme measure to reduce your overall tax burden is to become a resident of another country. This involves significant pre-planning to ensure that you have severed your ties with Canada. You may also be subject to Canadian tax on your assets when you depart the country. Consulting an experienced tax professional before you leave Canada is necessary.