23 April 2025 External T.I. 2024-1046391E5 - Meaning of Red Seal worker

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: Are workers that install wind turbines (as described herein) Red Seal workers, as that term is defined in subsection 127.46(1)?

Position: No.

Reasons: The wind turbine workers that perform the duties described in this letter are not Red Seal workers because they do not work in a Red Seal trade, as that term is defined in subsection 127.46(1).

XXXXXXXXXX									2024-104639
										Nicki Verlinden

April 23, 2025

Dear XXXXXXXXXX,

Re: Labour Requirements and the meaning of “Red Seal worker” (wind turbine workers)

You asked us to clarify the meaning of the term Red Seal worker, which is defined in subsection 127.46(1) of the Income Tax Act (footnote 1) (“Act”) and used in the context of the Labour Requirements. The issue is whether the workers that install wind turbines (herein referred to as “wind turbine workers”) are Red Seal workers.

OUR COMMENTS

This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

Unless otherwise stated, all references to a statute are to the relevant provision of the Act or to the Income Tax Regulations (footnote 2) (“Regulations”).

A. Hypothetical Facts

• Project A is a wind turbine installation project in a province in Canada and it requires various types of workers to perform a variety of duties, including but not limited to: electricians, crane operators, concrete finishers, labourers, wind turbine workers, etc.
• Wind turbine workers represent the majority of the covered workers (defined below) on Project A.
• Wind turbine workers specialize in wind energy projects and perform a variety of specialized duties, including some duties that could theoretically be performed by construction craft workers, some other duties that could theoretically be performed by millwrights (e.g., rigging components of the turbines), and some other duties that could theoretically be performed by concrete finishers, among their other duties.
• However, the duties performed by the wind turbine workers on Project A are not performed by construction craft workers, millwrights, concrete finishers, nor any other federally, territorially or provincially-registered tradespeople.
• The majority of the wind turbine workers hired for Project A are members of a single trade union that is not an affiliate of Canada's Building Trades Unions for a given trade in a region or province.
• The wind turbine workers are highly-skilled workers and receive substantial on-the-job training.
• Presently, there is no Red Seal Program or equivalent provincially registered (i.e., designated) (footnote 3) training/apprenticeship/certification program specifically for wind turbine workers in any Canadian jurisdiction.

B. Summary of the tax policy

In its 2022 Federal Budget, the Department of Finance (“Finance”) stated that to incentivize companies to create good jobs, it would attach labour requirements to some of the newly announced clean economy investment tax credits. (footnote 4) In order for a company to maximize the credits, it would have to ensure that workers are paid prevailing wages based on the local labour market conditions, and ensure that apprenticeship training opportunities are being created. (footnote 5)

C. Relevant legislation, Analysis and Discussion

I. Overview of the Issue

Subsection 127.46(5) sets out the apprenticeship requirements that an incentive claimant (footnote 6) must elect to comply with in order to avoid a 10% reduction to the clean economy tax credit that it is claiming.

It states, in part:

For the purposes of this section, the apprenticeship requirements for an incentive claimant for an installation taxation year are that

(a) subject to paragraph (b) (footnote 7) , the incentive claimant makes reasonable efforts to ensure that apprentices registered in a Red Seal trade work at least 10% of the total hours that are worked during the year by Red Seal workers at a designated work site of the incentive claimant on the preparation or installation of specified property. (Emphasis added)

For purposes of the discussion that follows, we can summarize the formula embedded in paragraph 127.46(5)(a) for a particular installation taxation year:

Hours worked by apprentices registered in a Red Seal trade / Total hours worked by Red Seal workers.

The numerator is a factual determination. The interpretive issue that is the subject of this technical interpretation relates to the denominator. In particular, the issue is whether the wind turbine workers described in the hypothetical facts are considered to be Red Seal workers for purposes of the denominator.

II. Who are Red Seal workers?

Red Seal worker is defined in subsection 127.46(1) as follows:

Red Seal worker means a covered worker whose duties are, or are equivalent to, those duties normally performed by workers in a Red Seal trade.

To be a Red Seal worker, he or she must first be a covered worker. Red Seal workers are therefore a subset of covered workers, which is also defined in the same subsection, as follows:

covered worker means an individual (other than a trust)

(a) who is engaged in the preparation or installation of specified property at a designated work site as an employee of an incentive claimant or of another person or partnership;

(b) whose work or duties in respect of the designated work site are primarily manual or physical in nature; and

(c) who is not

(i) an administrative, clerical or executive employee, or

(ii) a business visitor to Canada as described in section 187 of the Immigration and Refugee Protection Regulations.

A covered worker is therefore a class of worker whose duties are primarily manual or physical in nature, including tradespeople and labourers (journeypersons and apprentices). It is also notable that he or she must have been engaged in the preparation or installation of the specified property at a designated work site of the incentive claimant.

The other relevant definition to consider is Red Seal trade, which is also defined in subsection 127.46(1) as follows:

Red Seal trade means, for a province using the Red Seal Program for a particular trade, the relevant Red Seal trade managed by the Canadian Council of Directors of Apprenticeship and, in any other case, an equivalent provincially registered trade.

Finance’s explanatory notes state that “this term has essentially its ordinary meaning of a Red Seal trade for a province or territory under the Red Seal Program, but also includes an equivalent provincially registered trade for those provinces that do not use the Red Seal Program for a particular trade.”

According to the Red Seal Program’s website:

The Red Seal Program is a national program that sets common standards to assess the skills of tradespeople across Canada. It is formally known as the Interprovincial Standards Red Seal Program. Industry is heavily involved in developing the national standard for each trade. It is a partnership between the federal government and provinces and territories.

Provinces and territories are responsible for apprenticeship training and trade certification in their respective jurisdictions, including the administration of the Red Seal Program. […]

Each Canadian jurisdiction has its own laws respecting which trades are designated for apprenticeship training and certification. Not all of these designated trades are Red Seal Trades.

Only trades that are approved for Red Seal status are called Red Seal Trades. (footnote 8)

III. Determining Whether a Covered Worker is a Red Seal Worker

When determining whether a particular covered worker is a Red Seal worker, the incentive claimant examines the duties performed by the particular covered worker (in this case, the wind turbine worker).

Then, the incentive claimant must determine if those duties are, or are equivalent to, those duties “normally performed” by workers in a Red Seal trade, as defined in subsection 127.46(1).

As noted above, the definition of Red Seal trade in subsection 127.46(1) includes equivalent provincially registered trades that do not use the Red Seal Program. By contrast, this definition excludes trades that are not registered (i.e., not designated or prescribed) by a province or territory. (footnote 9)

The phrase “normally performed” has been considered by the Federal Court of Appeal (“FCA”) in Canadian Clyde Tube Forgings Ltd. v. The Queen, (footnote 10) in the context of the manufacturing and processing credit, specifically in reference to the definition of cost of labour in subparagraph 5202(b)(iii) of the Regulations. The FCA stated:

Nothing in the related provisions of the Act or regulations leads me to conclude that the pertinent words of the definition of the "cost of labour" are to be interpreted otherwise than in their plain English sense. The adverb "normally" appears clearly to relate to the modus operandi of the manufacturer and processor claiming inclusion of the particular outlay in its cost of labour.

In the labour law context, the phrase “normally perform the required work” has also been considered in binding arbitration cases when interpreting its usage in collective agreements. For example, one such case concerned the use of this phrase in the application of an overtime allocation provision in a collective agreement. (footnote 11)

At paragraph 38, the Arbiter stated:

As noted in Pinty’s Foods, supra, the weight of arbitral jurisprudence suggests the plain meaning of “normally perform” refers to one who performs the work at issue on a regular basis. Meanwhile, “work” has been interpreted as referring to the identifiable tasks at issue, which is different than the distinction between classifications. Thus, the language used by these parties has been interpreted as simply meaning the employee who regularly performs the tasks at issue.

The above jurisprudence suggests that the phrase “normally performed” as it appears in the phrase “a covered worker whose duties are, or are equivalent to, those duties normally performed by workers in a Red Seal trade” should be interpreted based on the actual business practices of the incentive claimant vis-à-vis the specific duties performed by the particular covered worker.

The denominator of the formula embedded in paragraph 127.46(5)(a) requires an examination of the duties of the Red Seal workers that worked during the year at the designated worksite of the incentive claimant on the preparation or installation of specified property. This is not a theoretical determination; it is a factual determination.

The inquiry to be made by the incentive claimant in respect of the particular covered worker is therefore: Were his or her duties normally performed by a worker in a Red Seal trade?

The hypothetical facts assert that the wind turbine workers engaged in the preparation or installation of the specified property at the designated work site of the incentive claimant on Project A were not trained or certified by the Red Seal Program or any equivalent provincially or territorially designated trade program, because no such program exists. Considering the relevant legislation, jurisprudence, the tax policy and the explanatory notes to the definition of Red Seal trade noted above, the duties performed by the wind turbine workers cannot be said to be “duties normally performed by workers in a Red Seal trade”.

D. Conclusion

As of the date of this letter, the wind turbine workers described in the hypothetical facts above would not be considered Red Seal workers for purposes of the apprenticeship requirements in subsection 127.46(5). Consequently, the wind turbine workers do not need to be included in the denominator of the formula embedded in paragraph 127.46(5)(a).

We trust that these comments will be of assistance.

Yours truly,

Kimberley Wharram
Manager, Resources Section
for Division Director
Reorganizations Division
Income Tax Rulings Directorate

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 R.S.C. 1985, c. 1 (5th suppl.), as amended.

2 C.R.C., c.945, as amended.

3 The term “designated” is more commonly used in the applicable provincial and territorial legislation, as well as on the Red Seal Program website and on the Ellis Chart website. However, the word “prescribed” is also used in some provincial legislation (for example in Ontario the word “prescribed” is used instead~ see Building Opportunities in the Skilled Trades Act, S.O. 2021, Chapter 28).

4 Note that the labour requirements do not apply to the Clean Technology Manufacturing investment tax credit.

5 “An Investment Tax Credit for Clean Technologies” in “2.2 Securing Canada’s Competitiveness and Creating Good Jobs for Workers” of Fall Economic Statement 2022, available at: https://www.budget.canada.ca/fes-eea/2022/report-rapport/chap2-en.html#a7

6 This term is defined in subsection 127.46(1) as a person that, or a partnership at least one member of which, plans to claim or has claimed a specified tax credit for a taxation year.

7 Paragraph (b) overrides paragraph (a) if the 10% requirement cannot be met because of conflicting requirements of an applicable law or collective agreement. In that case, the incentive claimant must make reasonable efforts to come as close as possible to meeting the paragraph (a) requirement, without breaking the other applicable rules. (Source: EN November 2023 [S.C. 2024, c. 15 (Bill C-59)]).

8 Trades in Canada.

9 Note: Although the definition of Red Seal trade in subsection 127.46(1) only refers to a province, subsection 35(1) of the Interpretation Act (R.S.C., 1985, c. I-21) states that, in every enactment, “province” means a province in Canada, and includes Yukon, the Northwest Territories and Nunavut.

10 82 DTC 6041 (FCA).

11 Horizon Plastics International Inc. v United Food & Commercial Workers Canada, Local 175, 2017 CanLII 40244 (ON LA), discussed at paragraphs 37 and 38 of the decision.