30 June 1998 External T.I. 9812065 - 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.

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.

Principal Issues: Whether OETC is available to an individual where a Canadian personal service corporation is interposed between the individual and a specified employer provided that all the other conditions would otherwise have been met?

Position:. Yes

Reasons: It is clear from the Explanatory Notes issud by Finance on December, 1996 when subsection 122.3(1.1) was first introduced that that subsection would not apply if the person who receives the services is a specified employer of the individual had it not been the existence of the personal service corporation. XXXXXXXXXX

XXXXXXXXXX 981206
S. Leung

June 30, 1998

Dear Sirs:

Re: Overseas Employment Tax Credit (OETC)

We are writing in reply to your facsimile of May 8, 1998 in which you requested our opinion as to whether subsection 122.3(1.1) of the Income Tax Act (the “Act”) applies to the situation described below.

The Situation

A small Canadian service corporation (Canco) employs not more than 5 full-time employees one of whom is a specified shareholder of Canco (the individual). The individual is employed by that corporation to perform qualifying activities outside of Canada for more than six consecutive months. Had it not been for the existence of Canco, the individual would have been an employee of the person (the service receiver) to whom Canco through the individual provides services. The service receiver is a specified employer within the meaning of that term under subsection 122.3(2) of the Act.

Our Comments

It is our view that in the situation outlined above, the fact that Canco was interposed between the individual and the service receiver would not, by itself, deny the individual to claim overseas employment tax credits with respect to his or her employment in respect of qualifying activities. In this regard, we would like to refer you to the Explanatory Notes issued by the Department of Finance on December, 1996 with respect to the proposed legislation of subsection 122.3(1.1) of the Act which, among other things, state that:

“...the individual may not claim a tax credit in respect of income from that employment unless the person or partnership to which the employee’s services are provided is a specified employer”.

It is clear from the Explanatory Notes that subsection 122.3(1.1) of the Act would not apply if the service receiver in the above-noted situation is a specified employer of the individual had it not been for the existence of Canco. Of course, all the other conditions set out in subsection 122.3(1) of the Act must be met for an individual to be eligible for the OETC.

In the situation described above, Canco who is the employer of the individual should issue the Form T626 “Overseas Employment Tax Credit” to the individual.

The above comments represent our general views with respect to the subject matter of your letter. These comments do not constitute an advance income tax ruling and therefore, as described in paragraph 22 of Information Circular 70-6R3, are not binding on the Department.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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