Overseas Employment Tax Credit - T626 -

I have got your email address by chance when I was searching for information regarding the Overseas Employment Tax Credit.
I have an inquiry and I appreciate if you may help me clarifying it.
I got a job offer from an overseas engineering company in Dubai to work as a senior architect. I think this will fall under engineering. The employment is permanent. I will be leaving my family in Canada. The company was originally a Canadian company but merged with a huge US company in the middle east and the branch in Toronto merged with another US company. How can I check if the company is a resident of Canada or a foreign affiliate of a Canadian resident corporation. The HR department in the middle east cannot give me a straight answer. Is there a Canadian Government department where I can refer to for this purpose?
Thanks in advance.
david ingram replies:

The clue to the success of the T626 is whether the employer can answer yes to one of the three questions in Section D of the T626.  see it at - http://www.cra-arc.gc.ca/E/pbg/tf/t626/t626-07e.pdf

I can tell you from past experience that if you are dealing with the foreign affiliate, the answer is usually no.

Even if the Canadian government confirmed that the employer qualified, it is still up to the employer to decide it is and for someone in authority to sign the form for you.

The reason they do not want to sign sometimes seems to be that the affiliate does not want to bring their business operations into the vision of the CRA.  We have just had the same thing happen in Turkmenistan with an affiliate in the Hibernia Oil Project in Newfoundland.  I told the questioner that he should qualify but no one in the St John's office will co-operate and agree to sign the T626.

If taking the job is contingent on the Overseas Employment Tax Credit, you had better have that information in writing from a company officer verifying that the company is an affiliate and that the company will sign the OETC and if the CRA does not accept it, the company will do a tax equalization payment to make you whole. (on a company letterhead by a senior person with an original signature or part of an operations type employment manual)

Having an employment recruiter or a clerk in a temporary field office tell you that it is okay is just not sufficient unless there are a dozen of you and the others have been getting theirs for three or four years already.

I am sure that I have had well over 200 individuals tell me how they were told they would get the T626 by 'someone' but when push came to shove, everyone said 'not me'.

Also, since they are used to dealing with Americans who have an automatic $84,700 without any signature

If the company has a branch office in Canada, you can assume they will qualify but that does not guarantee that someone will sign the form as stated above.

If there is no branch office left in Canada, You can assume they will not qualify.

If you are the only Canadian Employee on the project, expect a rough time with the paperwork.

 I live in Alberta, and am Canadian.  I've been
working for a drilling contractor, for the exploration
and production of oil and gas, since January 2008. 
The company interviewed me in Canada, the company head
quarters are in Texas.  I was hired by the
Europe/Africa division.  Europe/Africa head quarters
are in Aberdeen, Scotland.  I work out of the
Turkmenistan office.  The company has an office in
St-John's newfound land.  I am employed year round,
and am on salary.  I work on a month in, month out
rotation, and also attend training courses on some of
my days off, causing me to be out of the country
(Canada) for 7 months of the year.  All of my duties
are performed outside of Canada.  My pay is deposited
into my Canadian bank account, from my company's
Bermuda account.

 Do I qualify for a tax credit?  Who/which office is
required to complete and sign the T-626 in order for
me to apply for the 80k exemption.  What information
is critical for my employer to include?  Which other
tax forms do I need to complete, while filing for the
2008tax year?

Thank you for your time, I hope to hear from you.


david ingram replies:

As you have stated the situation, it is likely that you will qualify.

To qualify, the company you work for MUST BE:

1.   a person or a corporation resident in Canada OR

2.   a partnership in which persons resident in Canada or corporations controlled by persons resident 
       in Canada, own interests that exceed 10% of the fair market value of all interests in the partnership, OR

3.   a corporation that is a foreign affiliate of a person resident in Canada.

If your employer qualifies under one of these criteria, they can issue a T626 Overseas Employment Tax Credit  for you and you get to deduct or exempt up to 80% of your Overseas Earnings up to a maximum of $80,000.

For you to qualify, you must perform at least 90% of your duties outside of Canada (used to be 100%) and be employed for at least 6 continuous months.  If it was only six months, the exemption amount would be a maximum of $40,000 as the amount is pro-rated by the number of days you are working overseas.

The T626 is pretty self-explanatory.  Only the company can decide if they qualify under 1, 2 ore 3 above.

Note also that it does not require 6 months or more in the current year.  If you had started working on Oct 1, 2007 and were still there, you would have earned a $20,000 exemption for 2007 when you hit march 31st, 2008.

Hello David,

I found your contact information by Googling for help on preparing Canadian 626 OETC forms.  xxxxxx xxxxx has field service personnel that spend weeks, months, and sometimes years out of the country while supervising the installation of mechanical equipment sold by xxxxxxxx to a client.  We have been preparing 626's for employee for several years, but administrative staff has changed and we have lost the experience in this.

Question is:

One employee was in Australia for the entire year of 2006 and for about 4 months of 2007.  He received the OETC for 2006 taxation year.  Obviously he only effectively needed 6 months of 2006 to qualify for the 626 for that year, so can the remaining months of 2006 be used to establish a claim for 2007 (in which he was away only 4 months).

I don't expect to access your time and expertise for free, so please let me know how compensation can be arranged.

Thank you in advance,
david ingram replies:

To qualify for the maximum exemption, an employee requires 12 months away.

six months qualifies one for a $40,000 tax free exemption and 9 months for $60,000.  It is prorated by the number of days.

Therefore,  someone leaving to work in Australia on Dec 1, 2005 would qualify for the month of Dec being tax free when he or she had worked in Australia unitl the end of May, 2006. If someone worked in Australia from Jan 1 to April 30th, 2007, he or she would have to have started work in Australia about Oct 29th, 2006 to qualify. If they were in Australia from Aug 1, they would get the one month of Jan 2007 as a proportional part of $80,000 tax free if they had left on Jan 31st.  As you can see, you can do a great disservice to an employee (and create animosity) by bringing someone home a month too early..

Hope this helps. 

I charge $450.00 an hour for this. 

Make a $225 donation to your local food bank.

david ingram--

I'm a an engineer from Canada working in Nigeria. I got this email address from the following site, http://centa.com/toc.htm
I was wondering if you guys have experience dealing with this type of tax situation and if you have any recommendations concerning what approach I should take doing my taxes.  Please let me know if you can offer assistance, if you need additional information, please advise.
david ingram replies:

Nigerian personal income tax rates range from 5% to 30% with the likelihood of your rate being 30% as a highly paid foreigner.

In general what happens with a worker in your position is that the company is paying the tax for you so that if your pay was $100,000 'after tax', the company is treating your wages as a $142,857.14, paying the Nigerian government 30% or $42,857.14 and giving you the $100,000 left over.

>From that $100,000, they would likely deduct CPP and EI and about $10,000 in Canadian Income Tax.

If you have been working out of  Canada for a 12 month period and your employer qualifies as a Canadian Employer and you are working for a Canadian branch (they have at least 12 office locations in Canada) and can sign a T626 (Overseas Employment Tax credit form) you are essentially exempt on up to $80,000 (prorated by the number of months if 6 or more) and taxable on the excess.

You can see the form at

When doing your return, you would fill in the T626 and a foreign tax credit (form 2209) for the tax paid on the (142,857 - 80,000) $62,857.

In a sample i threw together, as a single person living in BC with no RRSP or any other deductions, you would receive a $2,851.00 refund from Canada - remember the $10,000 of tax deducted.

Note that in this case, if you put $5,000 into an RRSP your refund actually goes "down" to $2,809.29. 

If you paid  $1,000 Union or professional fees, your refund goes DOWN.

So be careful what you do in this situation.  Conventional tax deductions can take away from the benefits of the foreign tax and overseas employment tax credits and most of the run of the mill Canadian accountants do not realize this.

Therefore, if you are on a monthly RRSP contribution plan or something similar, stop it and if you are paying Union or Engineering  Dues, do NOT claim them on the return.  If you have already made RRSP contributions, do NOT claim them, carry them over to a future year. If this is NOT your first year and you have already filed for last year, check it over.

You asked if we can do this, the answer is yes.  That is 'what' we do.

Why did I answer the question as thoroughly?  I used it as a training question for an international  tax course.  It was picked out of about 60 question, 59 of which are not being answered.  Your name has been added to an international Q & A list.  If there are too many replies that you do not want, just send back one with "remove please" in the subject line and you will be removed.

david ingram's US / Canada Services
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Calls welcomed from 10 AM to 9 PM 7 days a week  Vancouver (LA) time -  (please do not fax or phone outside of those hours as this is a home office) expert  US Canada Canadian American  Mexican Income Tax  service help.
pert  US Canada Canadian American  Mexican Income Tax  service and help.
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Phone consultations are $450 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada. ($472.50 with GST for in person or if you are on the telephone in Canada) expert  US Canada Canadian American  Mexican Income Tax  service and help.
This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.

$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
$1,200 would be the same with one rental
$1,300 would be the same with one business no rental
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above and you moved in and out of the country.
This is just a guideline for US / Canadian returns
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
A Business for $400 - Rental and business likely $550 to $700
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to $100.00 each.
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable.  In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years.  We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

This is a guideline not etched in stone.  If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.

IRS Circular 230 Disclosure:  To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.--

Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation  in connection with personal or business affairs such as at www.centa.com or www.garygauvin.com.  If you forward this message, this disclaimer must be included." -




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