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Our Comments Legal expenses which taxpayers incur in connection with income earning activities are generally deductible to the extent they are reasonable while those relating to capital are generally not deductible. ... In our view, legal fees with respect to attempting to arrange new financing are not incurred in connection with income earning activities nor do they relate solely to the year. ... In order to be deductible, the fees must arise in connection with an agreement pursuant to which funds were borrowed. ...

The Technical Notes issued by the Department of Finance in 1983, when the Overseas deduction was replaced by the OETC, stated "(t)he new credit is available to individuals resident in Canada working abroad for six consecutive months or longer for a specified employer in connection with a resource, construction installation, agricultural or engineering project". ... E had to be employed by a specified employer and performed all or substantially all the duties of employment in a country other than Canada in connection with a contract under which the specified employer carried on business in such country. ... F is employed by a specified employer he would be eligible to claim the OETC provided the employer carried out the drilling activities itself outside Canada in connection with the two contracts and he performed all or substantially all the duties of his employment outside Canada. ...

They import such meanings as “in relation to”, “with reference to” or “in connection with”. The phrase “in respect of' is probably the widest of any expression intended to convey some connection between two related subject matters”. In our view, mortgage interest paid by an employer in connection with an employee's old residence should be included in the employee's income under paragraph 6(1)(a) and subsection 6(23) of the Act because it is clearly in respect of the financing of a residence. ...

In order for an individual to be entitled to the OETC under subclause 122.3(1)(b)(i)(B), the individual must have performed all or substantially all the duties of his employment in one or more countries other than Canada in connection with a contract under which the individual's employer carried on business in such country or countries with respect to any construction, installation, agricultural or engineering activity. ... In the case now under consideration by you it is essentially a question of fact as to whether the employer carried on one of the specified kinds of businesses in the United States and as to whether the employee performed all or substantially all the duties of his employment in the United States in connection with a contract under which his employer carried on such business. To assist in resolving such questions we recommend that you determine: (a) whether the employer had a contract under which it performed activities of the kind specified in subclause 122.3(1)(b)(i)(B); (b) whether such activities were the principal activities of the employer; (c) whether such activities of the employer constituted the carrying on of business by it in the United States; (d) whether the employee performed all or substantially all of his duties of employment in the United States, and (e) whether the duties of the employee performed in the United States were in connection with the abovementioned contract of the employer. ...

You submit that, under the plan, contributions would be made by the particular employer to a trustee (custodian) in connection with benefits that may be received by a person on the loss of an office or employment of a taxpayer and, as such, you believe that the Trust would qualify as a "retirement compensation arrangement" ("RCA") as that term is defined in subsection 248(1) of the Income Tax Act (Canada) (the "Act"). ... Generally, an RCA is an arrangement under which contributions are made by an employer to a custodian to fund an amount to be paid to an employee in connection with benefits to be received on, after or in contemplation of (a) any substantial change in the services rendered by the employee, (b) the employee's retirement, or (c) the loss of the employee's office or employment. ... In our view, the payments to be made to the custodian by the employer are being made to indemnify the directors and officers of the employer in respect of their personal obligations under the proposed amendments to the Employment Standards Act of Ontario and are not made in connection with benefits that are to be or may be received or enjoyed by an employee of the employer on, after or in contemplation of any of the circumstances set out in (a), (b) or (c) above. ...

Section 122.3 of the Income Tax Act (the "Act") provides that where an individual is resident in Canada, and throughout any period of more than 6 consecutive months that commenced in the year or a previous year, was employed by a person who was a specified employer and performed all or substantially all of his duties of employment outside Canada in connection with a contract under which the specified employer carried on a business outside Canada with respect to qualified activities, he will be eligible to claim the OETC. ... The Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information 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 subsection 122.3(1) of the Act, since their employment is in connection with a contract under which the specified employer carried on business outside Canada with respect to qualifying activities. ... In order for employees to qualify to claim the OETC, one of the conditions is that they must be employed by a specified employer, as defined in section 122.3(2)(a) of the Act, which carries on business outside Canada in connection with a contract. ...

" In light of this definition, the handling of woodchips to be shipped to the pulpmill may be a qualified activity in connection with manufacturing or processing under the definition of "qualified activities" found at section 5202(a)(iii) of the Regulations, but certainly not the shipping itself (i.e. the transportation). ... It is further contended that the transportation of woodchips is not "directly in connection with manufacturing or processing". The phrase "directly in connection with" as used in paragraph (b) of the definition "qualified activities" must be fulfilled in order for the transportation to be a "qualified activity". ...

Only "qualified activities" may be considered in the calculation of a corporation's M & P profit and section 5202 of the Regulations provides an exhaustive definition thereof which may be paraphrased as follows: "qualified activities" means (a) any of the following activities... in connection with manufacturing or processing... ... (b) all other activities... directly in connection with manufacturing or processing... but does not include any of (d)... shipping... of finished goods, (e) purchasing of raw materials... ... " XXX The phrase "directly in connection with" as used in paragraph (b) of the definition "qualified activities" must be fulfilled in order for the transportation to be a "qualified activity". ...

Only "qualified activities" may be considered in the calculation of a corporation's M & P profit and section 5202 of the Regulations provides an exhaustive definition thereof which may be paraphrased as follows: "qualified activities" means (a) any of the following activities...in connection with manufacturing or processing... ... (b) all other activities...directly in connection with manufacturing or processing... but does not include any of (d) shipping...of finished goods, (e) purchasing of raw materials... ... " 24(1) 21(1)(b) The phrase "directly in connection with" as used in paragraph (b) of the definition "qualified activities" must be fulfilled in order for the transportation to be a "qualified activity". ...

Accordingly, an individual who is not an employee, e.g. a self employed architect, is not eligible for the deduction form tax under this section. (2) The individual must have performed all or substantially all the duties of his employment in one or more countries other than Canada in connection with a contract under which the specified employer carried on business in such other country or countries with respect to any construction, installation, agricultural or engineering activity. ... The individual must have performed his duties of employment in the other country or countries IN CONNECTION WITH the employer's contract. Thus, for example, individuals whose duties of employment are administrative office functions, e.g. bookkeeping, for their employer will be eligible if they are "in connection with" the performance by the employer of a contract of the kind described above. ...