27 November 1992 Income Tax Severed Letter 9210395 - Overseas Employment Tax Credit

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.

921039
K. B. Harding
19(1) (613) 957-2111

November 27, 1992

Dear 19(1)

Re: Overseas Employment Tax Credit (OETC)

This is in reply to your letter of October 16, 1991, which was received in this office on April 7, 1992, wherein you requested our opinion concerning the eligibility to claim the OETC in the following scenarios.

Scenario A

24(1)

You are concerned whether the employees of the Canadian company who are working on the foreign project in the foreign country will be eligible to claim the OETC provided they are assigneed to the foreign project for a continuous period of more than six consecutive months.

Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information

Scenario B

24(1)

You are concerned whether the employees working on the foreign project will be eligible to claim the OETC.

In your letter you outlined what appears to be an actual fact situation related to completed transactions and events which have taken place. The review of such situations is the responsibility of the District Taxation Offices and it is generally our practice not to comment thereon. However, we are prepared to provide the following general comments which may be of assistance to you.

Section 122.3 of the Income Tax Act (the "Act") provides that where an individual is resident in Canada, and throughout any period of more than 6 consecutive months that commenced in the year or a previous year, was employed by a person who was a specified employer and performed all or substantially all of his duties of employment outside Canada in connection with a contract under which the specified employer carried on a business outside Canada with respect to qualified activities, he will be eligible to claim the OETC.

Where a specified employer is carrying on business outside Canada and has a subcontract to provide services through its employees to another Canadian or foreign company which is either carrying on a qualified activity or has a contract to carry on a qualified activity in a country other than Canada, such employees will be eligible to claim the OETC provided they meet the other criteria set out in section 122.3 of the Act. This position would be the same whether or not the business carried on by the specified employer was itself a qualified activity. As an example, a specified employer carries on a business outside Canada by providing data processing services outside Canada to a foreign company whose only business is the exploration for natural gas. The

Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information

employees of the specified employer providing the data processing services would qualify to claim the OETC, provided they met the other conditions set out in subsection 122.3(1) of the Act, since their employment is in connection with a contract under which the specified employer carried on business outside Canada with respect to qualifying activities.

The question of whether or not a project carried on in a foreign country qualifies as a construction, installation, etc. activity is a question of fact which can only be determined after reviewing the contracts and other documentation related to the overall project. Therefore, we are not in a position to provide you with any guidelines as to whether or not a specific project would fall within the guidelines of qualified activities as provided in clause 122.3(1)(b)(i)(B) of the Act.

In order for employees to qualify to claim the OETC, one of the conditions is that they must be employed by a specified employer, as defined in section 122.3(2)(a) of the Act, which carries on business outside Canada in connection with a contract. It is always a question of fact whether or not an individual is employed by a specified employer. Accordingly, where individuals remain on the payroll of one company and work for another company it is necessary to ascertain with which company they have an employer-employee relationship for purposes of determining whether or not they are employed with a specified employer. The fact that the payroll is reimbursed by another company would not by itself determine which company is the employer of a specific employee.

We trust these comments are adequate for your purposes.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch