Overseas employment tax credit (OETC) – Phase out

  1. How will the OETC be phased out?
  2. My employer has already committed to a contract before March 29, 2012. Am I still affected by the phase-out of the OETC?
  3. My employer is involved in several contracts, not all of which were committed to in writing before March 29, 2012. How will my OETC be calculated?
  4. I am working abroad and expect to qualify for the OETC. I previously submitted Form T1213, Request to reduce tax deductions at source, which was approved by the CRA. Will the tax deductions on my employment income be affected?
  5. Where can I get more information about the changes to the OETC?

An OETC can be claimed by an individual resident in Canada who works abroad for at least six consecutive months for a specified employer in connection with a resource, construction, installation, agricultural or engineering contract or for purposes of obtaining those contracts. In general terms, the credit equals the individual's tax payable on 80% of their qualifying foreign employment income (QFEI) or $80,000 (maximum QFEI), whichever is less.

Over the period from 2013 to 2016, the budget proposes to phase-out the OETC. The OETC will be eliminated in 2016.

Q1. How will the OETC be phased out?

A1. The percentage of QFEI and the maximum QFEI used in the calculation of the OETC will be reduced as follows:

Year Percentage Maximum QFEI
2013 60% $60,000
2014 40% $40,000
2015 20% $20,000
2016 0% $0

Q2. My employer has already committed to a contract before March 29, 2012. Am I still affected by the phase-out of the OETC?

A2. Until 2016, this phase-out will not apply to the QFEI earned by you in connection with a contract that your employer committed to in writing before March 29, 2012 (referred to as protected QFEI). The OETC will be eliminated in all cases for 2016 and subsequent years.

Q3. My employer is involved in several contracts, not all of which were committed to in writing before March 29, 2012. How will my OETC be calculated?

A3. The phase-out rules will apply on a prorated basis to the portion of your QFEI that is not protected. Form T626, Overseas Employment Tax Credit, will be updated to account for the revised calculation.

Q4. I am working abroad and expect to qualify for the OETC. I previously submitted Form T1213, Request to reduce tax deductions at source, which was approved by the CRA. Will the tax deductions on my employment income be affected?

A4. Until the end of 2012, your tax deductions will not be affected by the phase-out of the OETC. If you submit a request to reduce your tax deductions for 2013, any approved reduction will take into consideration the phase-out rules.

Q5. Where can I get more information about the changes to the OETC?

A5. The CRA is committed to providing taxpayers with up-to-date information. The CRA encourages taxpayers to check its Web pages often. All new forms, policies, and guidelines will be posted as they become available.

In the meantime, please consult the Department of Finance Canada's Budget 2012 documents for details.