21 April 1994 External T.I. 9402335 - OVERSEAS EMPLOYMENT TAX CREDIT (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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

					FILE # 940233

Principal Issues:

General enquiries on whether an employee qualifies for the OETC in various situations.

Position TAKEN:

No definite answers since situations involve Questions of fact.

Reasons FOR POSITION TAKEN:

Definite answers can only be made after examining all the relevant facts.

		940233

XXXXXXXXXX G. Middleton

Attention: XXXXXXXXXX

April 21, 1994

Dear Sirs:

This is in reply to your letter in which you requested various technical interpretations in respect of the overseas employment tax credit (the "OETC") in section 122.3 of the Act. Unless as otherwise stated all references to statute are to the Income Tax Act S.C. 1970-71-72, c.63 as amended consolidated to June 10, 1993 (the "Act"). You described the following facts:

Co. A is a holding company which is a resident of Canada. Co. B is a resident of Canada carrying on an active business in Canada and Co. B is 100% owned by Co. A. Foreign Co. C is carrying on business in a foreign country with respect to a listed activity in clause 122.3(1)(b)(i)(A) of the Act and Co. C is 100% owned by Co. A. An employee of Co. B is assigned to Co. C for a two year period. However, the employee will remain a resident of Canada and will perform substantially all of his employment duties outside Canada for Co. C in the foreign country while he is living outside Canada throughout the two year period.

Firstly, you asked us whether the employee could qualify for the OETC in these circumstances. Secondly, you described Scenarios #1, #2 and #3 involving the same parties with somewhat different circumstances and you asked us to comment on the application of the OETC for those Scenarios.

The majority of your questions involve questions of fact which can only be determined after an examination of all of the relevant facts. For example, it is a question of fact: whether an employee is employed by a specified employer in a particular situation; whether a specified employer is carrying on business outside Canada with respect to a listed activity in clause 122.3(1)(b)(i)(A) of the Act; whether an employee continues to be resident in Canada while he is employed outside Canada; etc. Furthermore, as indicated in paragraph 21 of Information Circular 70-6R2, when a requested interpretation relates to a contemplated transaction, a taxpayer should request an advance income tax ruling rather than an opinion and, for written opinions on completed transactions, a taxpayer should consult with a district office. Although we are unable to provide you with specific answers to your questions relating to Scenarios #1, #2 and #3 since they involve questions of fact, we are prepared to offer the following general comments on the original situation described above.

If, for example, the employee is, in fact, an employee of foreign Co. C and Co. C is a specified employer of the employee throughout the two year period mentioned above, he would be entitled to deduct an OETC provided that the other requirements under section 122.3 of the Act are satisfied.

Alternatively, if the employee is an employee of Co. B and Co. B has a contract with Co. C under which Co. B carries on business outside Canada with respect to a qualified activity (i.e. an activity listed in clause 122.3(1)(b)(i)(A) of the Act) carried on by Co. C, the employee would be entitled to deduct an OETC provided that the other requirements under section 122.3 of the Act are satisfied.

We trust that our comments will be of assistance to you.

Yours truly,

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