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: Determine if the specified employer carried on business outside Canada with respect to the exploration for or exploitation of petroleum, natural gas, minerals or other similar resources.
SECTION: ITA 122.3(1)(b)(i)(A)
Position: Yes. The specified employer carries on business outside Canada, subcontracting inspection services to a company exploring for and exploiting petroleum.
Reasons: The broad meaning of the words "exploitation" and "with respect to".
July 28, 2003
XXXXXXXXXX Tax Services Office Head Office
XXXXXXXXXX Income Tax Ruling Directorate
Audit Services Section Luisa A. Majerus
(613) 946-3558
2003-001491
Overseas Employment Tax Credit ("OETC") - Inspection Services
We are writing in response to your memorandum dated April 16, 2003 in which you request our views on whether the specified employer carries on business outside Canada with respect to the exploration for or exploitation of petroleum, natural gas, minerals or other similar resources pursuant to clause 122.3(1)(b)(i)(A) of the Income Tax Act (the "Act").
Background
XXXXXXXXXX (the "Employer") was incorporated in Canada and is a resident of Canada for the purposes of the Act. The employees of the Employer are also Canadian residents for purposes of the Act.
The Employer has been awarded a contract to inspect and monitor XXXXXXXXXX in XXXXXXXXXX (the "Client") oil field operations. The employees of the Employer are performing their duties in XXXXXXXXXX for a period of at least six consecutive months.
The Employer's inspection responsibilities start during the exploration process and continue to the development of a producing oil well. The Employer's employees develop and implement comprehensive inspection programs for XXXXXXXXXX and other miscellaneous facilities.
The Client is in the business of oil and gas exploration, development and production in XXXXXXXXXX.
You have asked for our views on whether the Employer carries on business with respect to the exploration for or exploitation of petroleum.
In Terry Gonsalves v. Her Majesty the Queen (2000 DTC 1491) the Tax Court of Canada opined that the Act did not require, for OETC purposes, that the specified employer also be the main or prime contractor on any qualifying project outside Canada.
Our position, as confirmed by the Gonsalves case, is that the OETC is available to employees of a specified employer who is carrying on business outside Canada, in other than a qualifying activity, provided the employer has a contract or subcontract to provide its services through its employees to another person in respect of a qualifying activity carried on by that person outside Canada. The Employer's employees will qualify for the OETC if the Client is carrying on the business of exploration for or exploitation of petroleum, natural gas, minerals or other similar resources and the employees provide services in respect of those activities carried out by the Client.
Based on the information provided regarding the Client's XXXXXXXXXX operations, it would appear that the Client is in the business of exploration for or exploitation of petroleum, natural gas, minerals or other similar resources for purposes of clause 122.3(1)(b)(i)(A) of the Act because of its activities relating to exploration for, and production of oil and natural gas. Since you have not concluded that the Client is not in the business of exploration for or exploitation of petroleum, natural gas, minerals or other similar resources pursuant to clause 122.3(1)(b)(i)(A) of the Act and since the Employer's contract is to provide inspection services through its employees to the Client in respect of its qualifying activity carried on outside Canada, the Employer's employees will qualify for the OETC.
We trust these comments will be of assistance.
For Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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