28 April 1999 External T.I. 9910985 - OETC - PERSONAL SERVICES CORPORATION

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.

XXXXXXXXXX 							991098
T. Harris
April 28, 1999

Dear Sirs:

Re: Overseas Employment Tax Credit

Your letter of April 1, 1999 requesting an opinion with respect to the Overseas Employment Tax Credit (the "OETC") has been forwarded to this Directorate for reply.

Your concern involves the application of paragraph 122.3(1.1)(c) of the Income Tax Act (the "Act") to the situation where an individual is a self-employed engineer doing contract work on an engineering project in China. In order to qualify for the OETC the individual is contemplating the incorporation of a corporation. The individual would then provide these services as an employee of this corporation.

The situation described in your letter appears to involve actual proposed transactions relating to specific taxpayers. Assurance as to the tax consequences of actual proposed transactions will only be given in the context of an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 issued by Revenue Canada on December 30, 1996. A request for an advance income tax ruling, however, cannot be considered when the transactions are completed or where the issues involved are primarily questions of fact. Nevertheless, we can offer the following general comments which we hope will be of assistance to you.

For the purposes of applying paragraph 122.3(1.1)(c) of the Act, it is a question of fact as to whether or not, a particular individual, who has chosen to incorporate a company and provide his or her services via that company, would reasonably, but for the existence of that company, be regarded as an employee of a person or partnership that is not a specified employer. This determination can only be made once all of the relevant facts have been examined.

In this regard, the Department will take into consideration certain factors which may indicate that, in the absence of an individual's personal services corporation, the individual would be regarded as an employee of a foreign firm rather than a contractor to that firm. These factors, for example, may include:

-the corporate history and background of the individual's employer;

-whether the employer has other contracts both in or outside Canada or whether the overseas contract represents the only source of income of the employer;

-whether the overseas contract is the only source of funds from which the individual is remunerated; and

-how the employer obtained the overseas contract (i.e., through advertising in trade journals or newspapers or through direct contact with the foreign firm).

The Department will also carefully examine any contracts and other supporting documentation in light of the common law factors used to judge whether an individual is, in fact, an employee of the foreign firm. However, we believe that what really happens in practice is determinative of whether or not an employer/employee relationship exists.

We trust that our comments will be of assistance.

Yours truly,

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