Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Is the taxpayer entitled to the overseas employment tax credit?
Position: Based on limited information, most likely not.
Reasons: It appears the employment in question is not in connection with a contract under which a specified employer carries on business outside Canada with respect to a qualifying activity
XXXXXXXXXX 2002-012295
S. Wong
June 11, 2002
Dear XXXXXXXXXX:
Re: Overseas Employment Tax Credit
We are writing in reply to your letter of February 10, 2002 requesting our views as to whether you are eligible for the overseas employment tax credit ("OETC") under section 122.3 of the Income Tax Act (the "Act") in the following situation. We apologize for the delay in replying to your letter.
The Situation
Based on the information you provided, we understand that:
XXXXXXXXXX.
Responsibility for the determination of the income tax implications of completed transactions rests with the relevant tax services office. Since your situation involves a completed transaction, we can only provide you with the following general comments.
In order to qualify for the OETC, an individual must:
1. be resident in Canada in a taxation year;
2. be employed by a "specified employee" (generally a person resident in Canada or a corporation that is a foreign affiliate of a person resident in Canada) throughout any period of more than six consecutive months (the "qualifying period") that commenced before the end of the year and included any part of the year, other than for the performance of services under a prescribed international development assistance program of the Government of Canada; and
3. perform all or substantially all (i.e., more that 90%) the duties of his or her employment outside Canada in connection with a contract under which the specified employer carries on business outside Canada with respect to:
a. the exploration for or exploitation of petroleum, natural gas or other similar resources,
b. any construction, installation, agricultural or engineering activity, or
c. any prescribed activity (i.e., an activity performed under contract with the United Nations), or for the purpose of obtaining, on behalf of the specified employer a contract to undertake any of these activities ("qualifying activities").
We have assumed for the purpose of our comments below that you are resident or deemed to be resident in Canada in the XXXXXXXXXX taxation year despite being required to work on the Project in XXXXXXXXXX that year. We note that whether or not you are resident in Canada in that year is a question of fact that can only be determined after taking into consideration all of the relevant facts. Interpretation Bulletin IT-221R3, "Determination of an Individual's Residence Status" (a copy of which can be obtained from our website at www.ccra-adrc.gc.ca) describes circumstances in which an individual is considered to continue to be resident in Canada after having physically departed from Canada. IT-221R3 also discusses deemed residency.
With respect to the requirement that you be employed by a "specified employer" throughout the qualifying period, other than for the performance of services under a prescribed international development assistance program of the Government of Canada, it is not clear from the information you have provided what exactly was the nature of the relationships among you, XXXXXXXXXX under the Contract. It is not clear whether you were an independent contractor earning self-employed income or an employee of either XXXXXXXXXX. If you were an independent contractor of XXXXXXXXXX, you will not be eligible for the OETC. Assuming that you were in an employer-employee relationship, to qualify for the OETC, your employment must also be with a "specified employer". Again, it is not entirely clear based on the information provided whether you were employed by XXXXXXXXXX. The question of who was your employer is a question of fact which would require a review of all the relevant facts, including a review of the Contract and the facts concerning the actual performance of your duties. If you were an employee of XXXXXXXXXX, the "specified employer" requirement would be satisfied. However, if you were an employee of XXXXXXXXXX, you will not be eligible for the OETC since it does not appear the XXXXXXXXXX is a person resident in Canada or a corporation that is a foreign affiliate of a person resident in Canada.
Nevertheless, even if you were an employee of XXXXXXXXXX and assuming that the Project is not a "prescribed international development assistance program of the Government of Canada (that is the Project is not an international development assistance program of the Canadian International Development Agency that is financed with funds (other than loan assistance funds) which are provided under External Affairs Vote 30(a), Appropriation Act No.3, 1977-78, or another act providing for such financing), it appears you most likely would not qualify for the OETC on the basis that XXXXXXXXXX did not carry on business outside Canada with respect to the Project, and even if it did, it did not do so with respect to one of the "qualifying activities".
As stated in paragraph 15 of Interpretation Bulletin IT-497R3, "Overseas Employment Tax Credit" (which is available on our website at www.ccra-adrc.gc.ca and discusses in more detail the requirements of the OETC), whether or not a specified employer is carrying on business outside Canada is always a question of fact. In determining this, the major factors to be considered are: (a) the objects of the employer's business; and (b) the nature of the activities the employer is carrying on outside Canada. Employment with the Government of Canada generally does not qualify for purposes of the OETC, because a body politic or government would not usually carry on business outside Canada under a contract.
Even if XXXXXXXXXX was carrying on business outside Canada under a contract in this particular case (which appears highly unlikely), it seems that it did not do so with respect to any of the "qualifying activities" referred to above. In particular, it appears neither XXXXXXXXXX carried on: (a) the exploration for or exploitation of petroleum, natural gas or other similar resources; or (b) any construction, installation, agricultural or engineering activity (based on the limited information provided, it doesn't appear that developing the XXXXXXXXXX would be a "construction, installation or engineering activity" as contemplated by section 122.3 of the Act). We have also assumed that the Project and any activities related thereto are not activities performed under contract with the United Nations.
Based on the foregoing, we are of the view that you would most likely not be entitled to the OETC with respect to your engagement in the Project for the XXXXXXXXXX taxation year.
We trust that our comments will be of assistance to you.
Yours truly,
Jim Wilson
Section Manager
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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