2006 Ruling 2006-0186631R3 - Eligibility for OETC

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.

Principal Issues: Whether Canco is a specified employer within the meaning of 122.3?

Whether Employees are entitled to claim OETC?

Whether 122.3(1.1) will apply to prevent Employees from claiming OETC?

Position: Yes

Yes, if they otherwise meet the conditions as set out in the ruling.

No

Reasons: Canco meets conditions in 122.3.

Employees that meet the conditions in the ruling are eligible.

In order for the restriction in 122.3(1.1) to apply, the conditions in all three paragraphs must be met.

XXXXXXXXXX 							2006-018663

Attention: XXXXXXXXXX

XXXXXXXXXX, 2006

Dear Sir:

Re: XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX in which you ask for an advance income tax ruling on behalf of the above company.

Definitions

In this letter, the following terms have the meanings specified:

(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) C.1 as amended to the date hereof. All statute references in this letter are to the Act unless otherwise indicated.

(b) "Canco" means XXXXXXXXXX.

(c) "Contract" is described is paragraph 4 below.

(d) "CRA" means the Canada Revenue Agency.

(e) "Employees" means XXXXXXXXXX, employees of Canco who will perform services in XXXXXXXXXX under the Contract.

(f) "Overseas Employment Tax Credit" means the amount deductible from tax otherwise payable under Part I for the year, pursuant to section 122.3 of the Act.

Facts

1. Canco was incorporated on XXXXXXXXXX under the laws of XXXXXXXXXX and is a taxable Canadian corporation and a private corporation as those terms are defined in subsection 89(1) of the Act. It files its returns at the XXXXXXXXXX Tax Centre, and is served by the XXXXXXXXXX Tax Services Office.

2. Upon incorporation, one share of Canco was issued to XXXXXXXXXX, and one share was issued to XXXXXXXXXX. On XXXXXXXXXX transferred her one share to XXXXXXXXXX. All three are resident in Canada for purposes of the Act.

3. Canco is resident in Canada under the Act. Canada does not have an income tax convention with XXXXXXXXXX. Canco carries on business in Canada as an XXXXXXXXXX. It did not employ more than five full-time employees throughout XXXXXXXXXX.

4. Canco has received a subcontract (the "Contract") XXXXXXXXXX The Contract is with a contractor (the "Canadian Contractor") that is a Canadian company that deals at arm's length with Canco. The builder is a non-resident corporation that deals at arm's length with Canco. The contract is for $XXXXXXXXXX. The duration of the contract is from XXXXXXXXXX to XXXXXXXXXX, and will resume again in XXXXXXXXXX to XXXXXXXXXX. The Contract is not part of a Canadian International Development Agency program.

5. But for the existence of Canco, an Employee of Canco would not otherwise be regarded as an employee of the Canadian Contractor or of the non-resident builder in connection with the Contract.

6. XXXXXXXXXX.

Proposed Transactions

7. Canco will send the Employees to XXXXXXXXXX to perform the services under the Contract. Canco will invoice the Canadian Contractor for work performed in XXXXXXXXXX, and will in turn pay the Employees.

8. The number of employees to be sent will vary depending on the progress of the project.

Purpose of the Proposed Transactions

Canco wishes to perform the XXXXXXXXXX services under the Contract.

Other Information

To the best of your knowledge, none of the issues involved in this advance income tax ruling is:

a. in an earlier return of Canco, an Employee or a related person;

b. being considered or under assessment by a tax services office or taxation centre in connection with a previously filed tax return of Canco, an Employee or a related person;

c. under objection by Canco, an Employee or a related person;

d. before the courts, and no judgement has been issued which may be under appeal; or

e. the subject of a ruling previously issued by the Directorate.

Rulings Given

Provided the preceding statements constitute a complete and accurate disclosure of all the relevant facts, and provided the proposed transactions are completed in the manner described above, we rule as follows:

A. In relation to Employees of Canco who perform services under the Contract, Canco will be a "specified employer" as that term is defined in subsection 122.3(2) of the Act.

B. Provided an Employee of Canco

• is resident in Canada in a taxation year,
• throughout any period of more than 6 consecutive months that commenced before the end of the year and included any part of the year, was employed by Canco, and
• performed all or substantially all of the duties of that employment outside Canada in connection with the Contract,

the Employee will be entitled to deduct the Overseas Employment Tax Credit, subject to the limitations in the formula set out in subsection 122.3(1) of the Act.

C. Subsection 122.3(1.1) will not apply to restrict an Employee from claiming the Overseas Employment Tax Credit as described in this letter.

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R5, dated May 17, 2002, and are binding on the CRA with respect to the Contract.

This letter is based solely on the Facts and Proposed Transactions described above. The documentation submitted with your request does not form part of the Facts and Proposed Transactions and any references thereto are provided solely for the convenience of the reader.

Yours truly,

XXXXXXXXXX
For Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch