30 April 1999 External T.I. 9902945 - MEANING OF "OUTSIDE CANADA" FOR OETC PURPOSES

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: The meaning of "Outside Canada" for OETC purposes

Position: as stated in the letter

Reasons: N/A

XXXXXXXXXX 990294
S. Leung
Attention: XXXXXXXXXX

April 30, 1999

Dear Sirs:

Re: The Meaning of “Outside Canada” for the Purposes of the
Overseas Employment Tax Credit (“OETC”)

We are writing in reply to your letter of December 30, 1998 in which you requested our view as to whether the crew members who work on board a XXXXXXXXXX-registered ship in “Canadian waters” would be considered to be inside Canada or outside Canada for purposes of the OETC. You indicated in your letter that the crew members work for a Canadian company on board of a multi-purpose cargo vessel which spends the majority of its time travelling between XXXXXXXXXX under a charter agreement with XXXXXXXXXX.

The information you provided is very sketchy. Based on the limited information you provided, it appears that the ship is used to transport

XXXXXXXXXX

The term “Canada” is not defined in the Income Tax Act (the “Act”). Section 255 of the Act merely states that, for the purposes of the Act, “Canada” is hereby declared to include and to have always included (a) the sea bed and subsoil of the submarine areas adjacent to the coasts of Canada in respect of which the Government of Canada or of a province grants a right, licence or privilege to explore for, drill for or take any minerals, petroleum, natural gas or any related hydrocarbons, and (b) the seas and airspace above the submarine areas referred to in paragraph (a) in respect of any activities carried on in connection with the exploration for or exploitation of the minerals, petroleum, natural gas or hydrocarbons referred to in that paragraph.

If our above understanding of the situation is correct, it is our view that the transportation of XXXXXXXXXX is not in respect of any activities carried on in connection with the exploration for or exploitation of minerals in the sea bed and subsoil of the submarine areas adjacent to the coasts of Canada in respect of which the Government of Canada or of a province grants a right, licence or privilege to explore for, drill for or take the minerals. In other words, in order for paragraph 255(b) of the Act to apply to include in Canada the seas and airspace above those submarine areas referred to in paragraph 255(a) of the Act, the activities of the enterprise have to be carried on in connection with the exploration for or exploitation of the minerals, etc. in those submarine areas. Since the ship in question does not engage in any activities in connection with such exploration or exploitation, paragraph 255(b) of the Act does not apply to include the seas or airspace above those submarine areas for the purpose of the Act.

As paragraph 255(b) of the Act does not apply to your situation, one should refer to the Interpretation Act to find the meaning of “Canada” for the purposes of Canadian statutes. Under subsection 35(1) of the Interpretation Act, Canada, for greater certainty, includes the internal waters of Canada and the territorial sea of Canada as determined under the Oceans Act and the airspace above and the sea bed and subsoil below those internal waters and territorial sea. In general terms, this embraces all waters and airspace within what is known as the 12 nautical mile limit.

Therefore, where the ship is in the territorial sea or in internal waters of Canada, it is considered to be in Canada. Otherwise, it is outside Canada.

The limited information provided in your letter precludes us from commenting with certainty on the eligibility of the crew members of the ship for the OETC. Based on the limited information provided, we have serious doubt on such eligibility. For one thing, the services rendered by the crew members of loading and unloading the additional cargo are likely not services rendered with respect to qualifying activities. Also, it is not clear whether the transportation of XXXXXXXXXX to Canada would be considered to be with respect to qualifying activities. Furthermore, it is doubtful that all or substantially all of the duties of the crew members’ employment are exercised outside Canada and are in connection with a contract under which their employer carried on business outside Canada with respect to qualified activities.

Yours truly,

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