Citation: 2010 TCC 253
Date: 20100506
Docket: 2009-3451(IT)I
BETWEEN:
GERARD HUMBER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] The question to be decided is whether the appellant,
Mr. Gerard Humber, is entitled to the overseas employment tax credit in
relation to his employment as a teacher in Qatar.
[2] The appellant is a professional engineer who was
employed as an engineering instructor by The College of the North Atlantic
(CNA) at their campus in Doha, Qatar. CNA is
based in St. John’s, Newfoundland and Labrador.
[3] The appellant was assessed under the Income Tax Act
for the 2007 taxation year to disallow an overseas employment tax credit in the
amount of $9,080.80.
[4] CNA has a contract with the State of Qatar to
establish, operate and administer a college of Applied Arts and Technology in Doha, Qatar.
[5] According to CNA’s website, programs are offered at
their Qatar campus in health sciences, information technology, engineering
technology and business studies. They also have a security academy and a centre
for banking and financial studies.
Discussion
[6] Section 122.3 of the Income Tax Act provides a
tax credit to persons resident in Canada who work outside Canada for a
Canadian employer. According to budget material, the primary purpose of the tax
credit is to assist Canadian firms who employ Canadian staff in bidding on
overseas contracts. The theory is that the tax credit will allow the Canadian
firms to reduce their salary costs.
[7] The provision is reproduced below, with emphasis on
the part of the paragraph that is at issue.
122.3 (1) Deduction from tax payable where
employment out of Canada -- Where an individual is resident in Canada in a taxation year and,
throughout any period of more than 6 consecutive months that commenced before
the end of the year and included any part of the year (in this subsection
referred to as the "qualifying period")
(a) was
employed by a person who was a specified employer, other than for the
performance of services under a prescribed international development assistance
program of the Government of Canada, and
(b) performed all or substantially all the duties of the individual's
employment outside Canada
(i)
in connection with a contract under which the specified employer carried on
business outside Canada with respect to
(A) the exploration for or exploitation of petroleum, natural gas,
minerals or other similar resources,
(B) any construction,
installation, agricultural or engineering activity, or
(C) any prescribed activity,
or
(ii) for the purpose of obtaining, on behalf of the
specified employer, a contract to undertake any of the activities referred to
in clause (i)(A), (B)
or (C),
there may be deducted, from the amount
that would, but for this section, be the individual's tax payable under this
Part for the year, an amount equal to that proportion of the tax otherwise
payable under this Part for the year by the individual that the lesser of
(c)
an amount equal to that proportion of $80,000 that the number of days
(i) in that portion of the qualifying period that is
in the year, and
(ii) on which the individual was resident in Canada
is of 365, and
(d) 80% of the individual's income for the year from
that employment that is reasonably attributable to duties performed on the days
referred to in paragraph (c)
is of
(e) the
amount, if any, by which
(i) if the individual is resident in Canada
throughout the year, the individual's income for the year, and
(ii) if the individual is
non-resident at any time in the year, the amount determined under paragraph 114(a)
in respect of the taxpayer for the year
exceeds
(iii) the total of all amounts each of which is an amount deducted under
section 110.6
or paragraph 111(1)(b),
or deductible under paragraph 110(1)(d.2),
(d.3), (f), (g) or (j), in
computing the individual's taxable income for the year.
(1.1) Excluded income -- No amount may be included under paragraph (1)(d) in respect of
an individual's income for a taxation year from the individual's employment by
an employer where
(a) the
employer carries on a business of providing services and does not employ in the
business throughout the year more than 5 full-time employees;
(b) the individual
(i)
does not deal at arm's length with the employer, or is a specified shareholder
of the employer, or
ii) where the employer is a partnership, does not
deal at arm's length with a member of the partnership, or is a specified
shareholder of a member of the partnership; and
(c) but
for the existence of the employer, the individual would reasonably be regarded
as an employee of a person or partnership that is not a specified employer.
(2) Definitions -- In subsection (1),
"specified employer" means
(a) a person resident in Canada,
(b) a partnership in which interests that exceed in total value 10% of the
fair market value of all interests in the partnership are owned by persons
resident in Canada or corporations controlled by persons resident in Canada, or
(c) a corporation that is a foreign
affiliate of a person resident in Canada;
"tax otherwise payable under this Part for the year" means the amount that, but for this section,
sections 120 and
120.2,
subsection 120.4(2)
and sections 121, 126, 127 and
127.4,
would be the tax payable under this Part for the year.
[8] The issue relates to s. 122.3(1)(b)(i), which
requires that the duties of employment are in connection with a contract under
which the employer carries on business outside Canada with respect to a listed
activity. The essential question is whether CNA carries on business with
respect to an engineering activity.
[9] The representative of the appellant appeared to
suggest two different ways in which this requirement is satisfied.
[10] First, it is suggested that there is a connection
between the business carried on by CNA and the petroleum businesses that are
carried on by companies owned by the State of Qatar.
[11] The connection was not described by the representative
as clearly as I would have liked. The appellant testified that many of his
engineering students are employees of the state-owned petroleum companies.
Also, the State of Qatar is involved in the management of the Qatar campus by
having members on the board of directors. The suggestion seems to be that the
contract between CNA and the State of Qatar supports engineering activities
performed by the petroleum companies.
[12] The representative suggested that s. 122.3(1)(b)(i)
does not require a strong connection between CNA’s business and the listed
activities. It is sufficient that the business be “with respect to” one of the
activities.
[13] I agree with the representative that the language used
in the section is extremely broad: Nowegijick v. The Queen, 83 DTC 5041 (SCC).
In addition, though, the provision must be given a contextual and purposive
interpretation.
[14] There is
clearly some connection between CNA’s business and engineering activities. Any
technical training of the type offered by CNA supports business activities that
students may subsequently engage in.
[15] However, the connection between training offered by a
general college and subsequent business activities is remote. Such a remote
connection cannot be what Parliament intended in section 122.3.
[16] It may be that there is a stronger connection in this
case between CNA’s business and the state-owned petroleum companies. However,
the evidence was insufficient to establish this. I would note that no one from
the administration of CNA testified at the hearing.
[17] The second argument of the appellant is that teaching
engineering is itself an engineering activity.
[18] In my view, this interpretation strains the ordinary
meaning of the term “engineering activity” beyond what Parliament likely
intended. Generally, there is a distinction between “teaching” and “doing.”
[19] The representative for the appellant points to a
definition of the “practice of engineering” in the provincial Engineers and
Geoscientists Act, 2008. He comments that this definition includes
instruction in engineering.
[20] Counsel for the respondent submits that inclusion of
instruction in the provincial legislation expands the meaning of the practice
of engineering beyond its normal meaning. She submits that this expanded
meaning is often used in professional regulatory schemes in order to achieve
specific legislative objectives.
[21] I agree with the respondent’s submission. Teaching
engineering is not normally thought of as an engineering activity.
[22] Based on the evidence properly before me, the
conclusion that I have reached is that
the appellant has not satisfied the requirements of section 122.3. The appeal
will be dismissed.
Signed at Ottawa, Canada this 6th
day of May 2010.
“J. M. Woods”
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