Line 426 - Overseas employment tax credit

You may be able to claim the overseas employment tax credit (OETC) if both of the following apply for 2014:

  • You were a resident or deemed resident of Canada at any time in the year.
  • You have employment income from certain kinds of work you did in another country.

You may be entitled to claim this credit for qualifying income from employment outside Canada.

In general, to qualify for the OETC, you must have performed all or substantially all (at least 90%) of your employment duties outside Canada for a period of more than six consecutive months (all or part of which were during the tax year for which you are claiming the credit) with a specified employer.

Your duties must also have been in connection with a contract (or for the purpose of obtaining a contract) under which your employer carried on a business outside Canada conducting one of the following activities:

  • the exploration for or exploitation of petroleum, natural gas, minerals, or other similar resources;
  • any construction, installation, agricultural, or engineering activity; or
  • any activity performed under contract with the United Nations (UN).

Note

Work you performed under an international development assistance program of the Canadian International Development Agency (CIDA) does not qualify for the OETC.

For more information about this credit, see Interpretation Bulletin IT497, Overseas Employment Tax Credit.

Phase-out

The OETC is being phased out. The percentage of qualifying foreign employment income (QFEI) and the maximum QFEI used in the calculation of the OETC will be reduced as follows:

  • 2014 - 40% of QFEI to a maximum QFEI of $40,000
  • 2015 - 20% of QFEI to a maximum QFEI of $20,000
  • 2016 - 0% of QFEI to a maximum QFEI of $0

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 phase-out rules will apply to all QFEI that is not protected.

If you submit Form T1213, Request to reduce tax deductions at source for 2015, any approved reduction will take into consideration the phase-out rules.

Completing your tax return

To request your OETC, attach to your return a completed Form T626, Overseas Employment Tax Credit.

On line 426 of your Schedule 1, enter the amount from line 17 of Form T626.

Before you can complete Part 2 of Form T626, your employer has to complete Part 1. If you worked for more than one employer in the year or had more than one qualifying period in the year with an employer, have a separate form completed by each employer and for each qualifying period with the employer.

When there are two or more contracts that have been committed to in writing, one or more before March 29, 2012 and one or more on or after March 29, 2012, you must consider the amount and days for each contract as the specified percentage and specified amounts differ for each contract. If this situation applies to you, use the following calculations to complete Form T626.

 

"Specified Amount" Line F

Days from line 1 above × [($80K × A) + ($40K × B)] ÷ 365

"Specified Percentage" Line G

Amount from Line 7 × [(80% × A) + (40% × B)]


A = total employment income for all of the periods referred to on line 1 of all T626 forms being filed for the year (from all employers) earned in connection with a contract that was committed to in writing before March 29, 2012 divided by the total employment income (from all employers) for all of the periods referred to on line 1 of all T626 forms being filed for the year.

B = total employment income for all of the periods referred to on line 1 of all T626 forms being filed for the year (from all employers) earned in connection with a contract that was committed to in writing on or after March 29, 2012) divided by the total employment income (from all employers) for all of the periods referred to on line 1 of all T626 forms being filed for the year.

Note

Be sure to also request the provincial or territorial overseas employment tax credit by completing Form 428, which can be found in the General income tax and benefit package for your province or territory of residence.

Forms and publications

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