My_question_is: Applicable to Another Jurisdiction or
Multi-jurisdictions
Subject: Overseas Employment Tax Credit
Expert: taxman at centa.com
Date: Friday October 27, 2006
Time: 01:19 AM -0400
QUESTION:
Hello, I’m from Chilliwack, BC, and I’m currently in my second
year of teaching in South Korea. I’m a contract employee for a
provincial board of education teaching middle school students and
training teachers. I had my taxes done last year and think that
I may have paid too much. I'm trying to figure out what tax
credits I qualify for. I heard that I may qualify for the
"Overseas Employment Tax Credit", which would potential reduce
the tax I pay by 80%, but I'm stuck on the part that states a
“specified” employer must employ me. What is this? Does this
mean that the Overseas Tax Credit is only for a select few? If
so, what makes these groups so special to receive a credit, while
it appears that I may not. Also, how does the Canadian Tax
Treaty with South Korea affect me? Because I’m working in a
country that has a “tax treaty” with Canada, does that
automatically make me a “Deemed Resident” of Canada? I’ve also
heard that because I’m a “Contract Employee” I may qualify as
“Self-Employed” and may be able to write off a lot of work
related expenses. This is all very confusing.
Any help explaining any of my tax questions would be greatly
appreciated. Thanks in advance.
---------------------------------------------------------------
david ingram replies:
I am assuming that you are an ESL teacher. As such, you do not
qualify for the Overseas Tax Credit which only applies to:
* the Exploration for or exploration of petroleum, natural
gas, minerals, or other similar resources
* any construction, installation, agricultural or
engineering activity
* any contract performed under contract with the United
Nations
or
* any activity performed to obtain a contract to undertake
any of the above activities.
---------------------------
However, there is a tax treaty with Korea and Article IV of the
Treaty reads as follows:
2. Where by reason of the provisions of paragraph 1 an individual
is a resident of both Contracting States, then this case shall be
determined in accordance with the following rules:
(a) he shall be deemed to be a resident of the Contracting State
in which he has a permanent home available to him. If he has a
permanent home available to him in both Contracting States, he
shall be deemed to be a resident of the Contracting State with
which his personal and economic relations are closest
(hereinafter referred to as his "centre of vital interests");
(b) if the Contracting State in which he has his centre of vital
interests cannot be determined, or if he has not a permanent home
available to him in either Contracting State, he shall be deemed
to be a resident of the Contracting State in which he has an
habitual abode;
(c) if he has an habitual abode in both Contracting States or in
neither of them, he shall be deemed to be a resident of the
Contracting State of which he is a national;
(d) if he is a national of both Contracting States or of neither
of them, the competent authorities of the Contracting States
shall settle the question by mutual agreement.
-------
What this means is that although you may be taxable in both
countries, you are only taxable on your world income in one
country. If you are working in Korea but deemed a factual
resident of Canada, you would report the Korean income to Canada
but exempt every cent on line 256.
In other words, you would not pay tax to Canada on the Korean
income. If this is the case, you can file a T1-ADJ form and
amend your Canadian return to remove the Korean income. I am, of
course, assuming here that you are paying your Korean Tax and
reporting any Canadian income such as interest or dividends or
rents on your Korean return and claiming any foreign tax credits
there.
-----------------------------------
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