9 June 1993 External T.I. 9317140 F - Overseas Employment Tax Credit - Subcontractors

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.

CANADIAN PETROLEUM TAX SOCIETYROUND TABLEJUNE 1993

Overseas Employment Tax Credit (OETC)

Question 6

An individual who meets certain tasks is eligible to claim the OETC. One test is that the individual perform all or substantially all the duties of his employment outside Canada "... in connection with a contract under which the specified employer carried on business outside Canada with respect to ..." certain listed activities including exploration for or exploitation of petroleum, natural gas, minerals or similar resources.

The expressions "in connection with" and "with respect to" are considered to have very broad meanings. Is it Revenue Canada's interpretation that non-operating support personnel (e.g. accountants, human resources and other administrative employees), who perform their services outside of Canada relative to a contract under which operating personnel (e.g. engineers, drilling crews and geologists) are clearly entitled to the OETC, will also be entitled to such credit?

If so, will such support staff be eligible for the OETC if they are employees of a consulting firm hired by the operating company, rather than employees of the operating company?

Is the answer any different depending on whether the operating company and the consulting company are related?

Is the answer any different depending on whether the employee providing the services is related to the consulting company?

Department's Position

Non-operating support personnel, who otherwise meet the criteria set out in section 122.3 of the Act and who were employed by a specified employer in connection with a contract under which the specified employer carried on a business outside Canada in a qualified activity, will be eligible to claim the OETC.

Generally, where a specified employer is carrying on business outside Canada and has a subcontract to provide operating support 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, its employees will be eligible to claim the OETC provided they meet the other criteria set out in section 122.3 of the Act. 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 section 122.3 of the Act.

It is a question of fact whether or not the consulting company is carrying on a business. Provided that the consulting company has a contract under which it is carrying on business outside Canada, the above response would not change because the operating company and the consulting company are related or because the employee providing the services is related to the consulting company.