21 April 2009 Internal T.I. 2008-0269471I7 - Definition of "exploitation" 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: Definition of "exploitation" for Overseas Employment Tax Credit

Position: No universal definition

Reasons: Activities that will be considered to be "exploitation" of the natural resource will differ depending on the natural resource being exploited.

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									2008-026947

Definition of "exploitation" for Overseas Employment Tax Credit

We are writing in response to your email of February 28, 2008 in which you explain that you have been contacted by XXXXXXXXXX . Apparently, XXXXXXXXXX has been told by his employer, XXXXXXXXXX , that the activities conducted by his employer were not qualifying activities in accordance with the overseas employment tax credit ("OETC") legislation. However, XXXXXXXXXX is not prepared to concede his position. XXXXXXXXXX would like to know the Canada Revenue Agency's definition of the word "exploitation", as it is used in paragraph 6(a) of IT-497R4, Overseas Employment Tax Credit.

The term "exploitation" is found in clause 122.3(1)(b)(i)(A) of the Income Tax Act (the "Act"), which reads, in part, as follows (underline added):

122.3 (1) 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

(ii) (C) any prescribed activity, or 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...

The term "exploitation" is not defined in the Act. In our view, the activities that would be included in the term "exploitation" will depend on the particular natural resource being exploited. Each situation will have to be examined on its particular facts.

The courts have given some guidance on the words "exploration" and "exploitation" for purposes of the OETC. In Gerald Dunbar v. The Queen, 2005 DTC 1807, the court found that Mr. Dunbar was eligible for the OETC. Mr. Dunbar's employer was contracted to provide his services as master on a supertanker that transported crude oil from the Arabian Gulf to Saint John, N.B. The judge decided that shipping crude oil to the place where it can be refined is part of the overall "exploitation" process. He said, "I conclude that all stages necessary to take the natural resource to its maximum value for the pursuit of profit is part of the exploitation process". From this, the CRA has concluded that transportation of crude oil to the refinery is included in the term "exploitation" for purposes of the OETC.

In Norman P. Larter v. The Queen, 2001 DTC 3673, the court found that Mr. Larter was not eligible for the OETC. Mr. Larter was captain of a ship that was part of an ocean drilling program operated by Texas A&M University in the USA, with the goal of determining when the next earthquake might happen. While seismic testing was done to determine the possible presence of oil and gas in order to avoid drilling into any such deposits, the judge decided that the work of the ship was not "exploring for" petroleum, natural gas or minerals. (The judge did not specifically refer to the word "exploitation" in his reasons.)

Since XXXXXXXXXX office has not provided you with the details of this case, we cannot comment on whether or not XXXXXXXXXX qualifies for the OETC.

We trust that we have been of assistance.

Yours truly,

Olli Laurikainen, C.A.

For Director
International & Trusts Division
Income Tax Rulings Directorate