19 February 1987 Income Tax Severed Letter 5-2624 - [Subsection 8(10) of the Income Tax Act]

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.

XXXX

D. Lanos (613) 957-2122

February 19, 1987

Deer Sirs:

This is in reply to your letter of December 3, 1986 which was forwarded from our Penticton District office.

The issue/concerns XXXX and his eligibility for either an employment income deduction under subsection 8(10) of the Income Tax Act (the "Act") or an overseas employment tax credit under section 122.3.

Under international law, Canada's territorial waters generally speaking extend 12 miles offshore. However, for purposes of the Act, paragraph 255(a) provides that "Canada" is declared to include the sea bed and subsoil of the submarine areas adjacent to the coast of Canada in respect of which the Government of Canada or of a province, grants a right, licence or privilege to explore for, drill for or take any minerals, petroleum, natural gas or related hydrocarbons (basically Canada's Continental Shelf). Paragraph 255(b) further provides that "Canada" includes the seas and airspace above the aforementioned submarine areas in respect of any activities carried on in connection with the exploration or exploitation of such minerals, petroleum, natural gas or hydrocarbons (See paragraph 4 of interpretation Bulletin IT-494 ).

XXXX

With regard to your second question, to qualify for either the employment income deduction under subsection 8(10) or the overseas employment tax credit under section 122.3 of the Act, the captain in question must perform the duties of his employment in some specific country other than Canada and not just on the high seas. If his duties are being performed off the coast of a particular country, it is a question of fact and law whether those duties are taking place to that particular country. An offshore location may be in the territory of a particular country as defined in an income tax convention between Canada and that country or as agreed between that particular country and its neighbouring states. In any event, the country of registration of a vessel is not relevant to a determination of the country in which it is or was operating.

Regarding your third question, if an individual was employed for more than six consecutive months and during that time all of his duties of employment were performed in a country other than Canada, in our view that individual would not be disqualified for the subsection 8(10) employment income deduction or the section 122.3 overseas employment tax credit solely because he was granted and used home leave or vacation leave during that period whether or not in Canada. The requirement is that the individual be employed throughout that 6 consecutive month period and performed all or substantially all of his duties of employment in that other country; vacation or home leave would form a normal part of the duration of an employment.

We hope you will find the above helpful. Our replies to your second and third questions will not assist in your client's particular fact situation as he is already disqualified from a subsection 8(10) income deduction or a section 122.3 tax credit, as the case may be, for the reason explained in our reply to your first question.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and intergovernmental Affairs Branch