8 December 1992 External T.I. 9224555 F - Overseas Employment Tax Credit-Subcontracts (7970-7)

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.

Attention:   19(1)

December 8, 1992

Dear Sirs:

Re:  Overseas Employment Tax Credit (OETC)

This is in reply to your letter of August 12, 1992 wherein you requested our opinion whether employees in the following situation qualify to claim the OETC.

24(1)

In your letter you outline an actual fact situation related to a transaction which probably has already 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 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 particular project carried on in a foreign country qualifies as a construction activity is a question of fact which can only be determined after reviewing the contracts and other documentation related to the overall project.

We trust the above will be adequate for your purposes.

Yours truly,

for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch