Section 122.3

Administrative Policy

27 November 1992 T.I. 920738 (September 1993 Access Letter, p. 421, ¶C117-203)

A Canadian company that was a specified employer and that as part of its business contracted to provide the services of its employees to another Canadian company that had contracted with a foreign government to carry on an oil and gas exploration project in a foreign country, would be entitled to the credit if the other requirements of s. 122.3 were met.

15 January 1990 Memorandum (June 1990 Access Letter, ¶1272)

The phrase "with respect to" is not broad enough to include the activities of a sub-contractor; the employer must directly carry on one of the activities described in s. 122.3(1)(b)(i).


Novek, "Employment Tax Credit: Sector Specific Tax Relief for Canadian Residents Working Overseas", Taxation of Executive Compensation and Retirement, September 1993, p. 808.

Subsection 122.3(1) - Overseas employment tax credit


Meredith v. Canada (Attorney General), 2002 DTC 7190, 2002 FCA 258

It was found that the Tax Court Judge had erred in denying the taxpayer a credit on the basis that he and a corporation of which he was the sole director and shareholder were one and the same.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Corporate/Separate Personality shareholder and corporation were separate 125

Rooke v. Canada (Attorney General), 2002 DTC 6442, 2002 FCA 393 (FCA)

A taxpayer spent approximately one-half of his time outside Canada, and his employment income was almost entirely attributable to engineering work done outside Canada. Sharlow J.A. rejected the interpretation advanced by the Crown that s. 122.3 required "employment outside Canada" as a condition that must be met throughout the qualifying period. Instead the provision only required that substantially all his duties of employment be performed outside Canada.

Timmins v. The Queen, 99 DTC 5494, [1999] 2 CTC 133 (FCA)

provision of services by governement for fees was an undertaking and business

The taxpayer was employed by the New Brunswick Department of Agriculture and Rural Development to assist in establishing and administering several dairy farms in Malawi, in consideration for which the Department received fees that were intended to cover its cost, cover overhead and make a small profit. In finding that the Department satisfied the requirement that it be carrying on a business, Noel J.A. stated (at p. 5498) that in applying the definition of business in s. 248(1):

"It seems clear that even if it could be said that the Department was not carrying on a business in the ordinary sense, it was at least engaged in an 'undertaking of any kind whatever', namely the provision of services under a contract for a fee."

In any event, the Department was engaged in the business in the ordinary sense. Although the expected profits were small "a profit is a profit whether big or small and irrespective of one's motivation for generating it (p. 5500).

Words and Phrases
carried on business
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business N.B. government had a servicing undertaking, i.e., a business 169

Timmins v. The Queen, 96 DTC 6378, [1996] 3 CTC 175 (FCTD)

The taxpayer's employer, the New Brunswick provincial government, agreed with the Canadian International Development Agency to assist in establishing and administering diary farms in Malawi in return for a fee that covered direct expenses and an assumed overhead figure of 15%. After finding (at p. 6383) that the phrase "carried on business" meant those activities of an employer which are carried on for profit, Wetson J. found, in applying the preponderant purpose test in Regional Assessment Commissioner v. Caisse Populaire de Hearst Limitée, [1983] 1 S.C.R. 57, that the province entered into the contract for humanitarian reasons, to increase employment opportunities for provincial residents, and for economic stimulation and that with respect to the monetary aspects of the contract, the province was interested in achieving these three main objectives without losing money in the process. Accordingly, the province was not carrying on business in Malawi.

If the test of reasonable expectation of profit was applicable (which was doubted) Wetson J. was not satisfied that the province objectively had a reasonable expectation of profit.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence 41

See Also

Legge v. The Queen, 2011 DTC 1302 [at 1699], 2011 TCC 413

The taxpayer was employed as an instructor at the College of the North Atlantic (the "CNA") on a campus in Qatar ("CNA-Q"). The program the taxpayer taught was designed to prepare students for maintenance and operator positions in the oil industry. More than half of the students were sponsored by local businesses, which covered their full tuition and other costs. Campbell J. found that the taxpayer qualified for a s. 122.3(1) exemption on his income on the basis that the taxpayer worked with respect to "the exploration for or exploitation of petroleum, natural gas, minerals or other similar resources." He reasoned (at para. 22) that the words "with respect to" are inherently broad and stated (at para. 24):

It could be argued that the first stage in the exploitation process must begin with the teaching stage because, unless the relevant skills and knowledge are taught to the professionals that work in these industries, natural resources could not be extracted and eventually sold for profit. The teaching phase for future engineers and technicians is an integral and necessary stage which is preliminary to their involvement in the actual exploration or exploitation process.

Humber (also involving a CNA-Q instructor) was distinguished on the basis that there the connection between CNA's activities and oil exploitation had not been adequately established.

In finding that CNA's business of teaching engineering could also be characterized as being "with respect to an engineering activity" under s. 122.3(1)(b)(i)(B), Campbell J stated (at para. 27) that "the teaching of engineering also constitutes an engineering activity."

MacIsaac v. The Queen, 2010 TCC 436

The taxpayer supplied personnel for ships, oil rigs, and other offshore businesses. Applying Dunbar (2005 TCC 269 , 2005 DTC 1807), Webb J. found that the taxpayer's provision to its workers of health benefits, injury insurance, and payroll, and its continuing contact with the employees during their work terms, suggested that the taxpayer's business was not mere placement of employees, but amounted to supplying drilling services. The taxpayer therefore carried on business outside of Canada for purposes of s. 122.3(1).

Humber v. The Queen, 2010 DTC 1170 [at 3371], 2010 TCC 253 (Informal Procedure)

The employer of the taxpayer, which operated and administered a college of applied arts and technology in Qatar, whose activities included the teaching of engineering, was not engaged in a business "with respect to ... any ... engineering activity" as required by s. 122.3(1)(b)(i)(A).

Thompson Trailbreakers Snowmobile Club Inc. v. The Queen, 2005 DTC 1807, 2005 TCC 269 (Informal Procedure)

The taxpayer's Canadian employer provided the services of captains for various shipping services including, in this case, transporting crude by super tanker ("VLCC") from Saudi Arabia to New Brunswick.

Miller J. first found that given that "all stages necessary to take the natural resource to its maximum value for the pursuit of profit is part of the exploitation process" (p. 1810) the transportation of crude to a refinery was part of the process of "exploitation of petroleum". He then went on to note, with respect to the requirement that the taxpayer's employer carry on business outside Canada, that although "if the Canadian company's business is solely that of a placement agency, the business is not being carried on outside Canada simply by virtue that the personnel placed, conducted their activities outside Canada ... if, however, the business is providing services by way of subcontracting to a contractor, which services must necessarily be provided outside Canada, then the business can be considered to be carried on outside Canada". He found that the arrangements here were "more akin to a subcontractor providing services of specialized personnel to sell VLCCs as opposed to simply a placement agency", so that this requirement for the credit being available also was satisfied.

Purves v. The Queen, 2005 DTC 684, 2005 TCC 290 (Informal Procedure)

The taxpayer, who lived in Windsor, Ontario, was employed by a Canadian firm that carried on the business of supplying engineering services, and as employee he provided such services on behalf of his employer to an American car manufacturer. In finding that the credit was available to the taxpayer, Bowie J. rejected the Crown's submission that because the taxpayer's employer was providing services of its personnel, and therefore was in a personnel business, it should not be characterized as being in a business with respect to engineering activities.

Adams v. The Queen, 2005 DTC 636, 2005 TCC 237 (Informal Procedure)

A services contract between a Canadian-resident corporation ("Cheyenne") that Sheridan J. later found to be a genuine drilling services subcontractor rather than merely an employment agency, and "Jeff Adams of Adams Family Enterprise Ltd." was held to be a services contract with the individual taxpayer (Jeff Adams) rather than his family company, with the result that the services of the taxpayer were with a specified employer, and qualified for the credit.

Administrative Policy

25 September 2013 External T.I. 2013-0497011E5 F - OETC - Qualifying period

related preparatory and sick leave periods can be included in qualifying period computation

An individual performed various preparatory work in Canada under a service contract for a qualifying activity for the purposes of the OETC, then worked abroad in connection with this contract for a little over five months, and then was granted sick leave and vacation on the return to Canada. Are the preparatory and sick leave periods included in the qualifying period computation? CRA responded:

[W]here an individual is employed under a qualifying sole contract for more than six consecutive months that includes certain functions performed in Canada at the beginning and end of the contract, the qualifying period could include a period of preparatory work or leave in Canada and the OETC may be claimed to the extent that, during the qualifying period, the employee has performed all or substantially all (90% or more) of the duties of his or her employment outside Canada (in days or hours of work) as part of a qualifying activity of the employer.

… Periods of absence from the workplaces abroad, in order to be included in the qualifying period, will generally have to be related to the contract with respect to the activities that are qualifying or consequential to the latter and the contract must be of a duration of more than six consecutive months in order for the employer to be considered to have carried on a business outside Canada for the purpose of the application of the OETC.

18 July 2013 External T.I. 2013-0493081E5 - Definition of "Outside Canada" - Water Boundaries

The correspondent asked when an individual engaged in offshore oil and gas exploration was "outside Canada" for the purpose of s. 122.3(1).

In general, "Canada" includes the "territorial sea," which comprises all waters and airspace within 12 nautical miles of the coast (Interpretation Act, s. 35(a), Oceans Act, s. 4(a)).

If the employment relates to exploration or exploitation of minerals or hydrocarbons (i.e. oil), as specified in s. 122.1(1)(b)(I)(A), then "Canada" includes anywhere on the "continental shelf" of Canada, which is deemed to extend at least 200 nautical miles from the coast under ss. 17-18 of the Oceans Act. This follows from the expanded definition of Canada for exploration purposes in s. 255 of the ITA, and assumes that the employer has government permission to exercise the offshore activities mentioned in s. 255.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 255 143

30 June 2009 External T.I. 2008-0304311E5 F - Période admissible - CIEE

meaning of “more than six consecutive months”

For the purposes of the Overseas Employment Tax Credit, when does the qualifying period of more than six consecutive months begin and end? CRA responded:

"[S]ix consecutive months" means either six entire months named on a calendar or a period starting from a given day in one month and ending on the day before the corresponding day of the sixth month and "more than six consecutive months" means six months plus at least one day. …

[T]he OETC will not necessarily be denied on the basis that the individual has not actually been outside Canada or at a place of employment outside Canada for the entire period of more than six consecutive months, provided that during that entire period, the individual performs substantially all of the duties of his or her employment outside Canada.

The "all or substantially all" test is considered to be met if 90% of the duties were performed abroad. The determination is made by comparing the actual time an individual spent performing the qualifying duties to the total time spent performing all duties during that same period. …

For example, if an individual was employed by a specified employer under a single contract that included certain duties performed in Canada and those duties were performed at the beginning and end of the contract, the qualifying period could include those periods in Canada as long as the individual performed all or substantially all of the duties of his or her employment outside Canada.

On the other hand, where the individual is employed by a specified employer under more than one contract outside Canada, it is possible to take into account several successive and continuous periods of time spent outside Canada, as the case may be, provided that, during the period established, the individual performed all or substantially all of the duties of his or her employment outside Canada for a specified employer under eligible contracts and provided that there was no termination of employment between each of them or that the employee was not an employee on demand.

8 December 2003 Internal T.I. 2003-0042537 F - CIEE & SRAS

lay-off due to SARS did not qualify as an absence
Also released under document number 2003-00425370.

After taking leave in Canada in accordance with the terms of their employment regarding an offshore project, the employees’ return to the project was refused by the local authorities due to the intervening outbreak of the SARS epidemic, so that they were laid off for some time. In finding that such layoff caused the employees to not satisfy the requirement for six months’ of continuous employment on the project, CCRA stated:

[T]he CCRA would not consider the period of absence of an employee in a situation such as yours, notwithstanding what is stated in paragraph 11 of Interpretation Bulletin IT-497R3, since this is a situation of a break in the employer/employee relationship rather than an absence.

Words and Phrases


"Where an employer is primarily engaged under a contract to develop computer software and to integrate such software with existing systems, and who may under such contract agree to install the software and additional hardware systems on site, we do not believe that the employer would be considered to be carrying on a business with respect to an installation activity ... ."

25 October 1994 External T.I. 9413235 - OVERSEAS EMPLOYMENT TAX CREDIT

Computer-based vocational training is not a qualified activity for purposes of s. 122.3(1)(b).

31 January 1994 External T.I. 9329515 F - Foreign Tax Credit

Employment for the purpose of obtaining contracts for the purchase of buildings, stores and businesses will not qualify even if construction activity is expected to accompany the acquisition.

23 December 1993 Internal T.I. 9335957 F - Overseas Employment Tax Credit-Subcontractor (7070-7)

Employees of a sub-contractor may qualify for the credit notwithstanding that the sub-contractor itself is not carrying on a qualified activity provided that the employees' duties are performed outside Canada in connection with a contract under which the sub-contractor carries on business outside Canada with respect to a qualified activity (i.e., of the main contractor). It is not relevant whether the main contractor is a specified employer.

93 CPTJ - Q.8

Re whether an employee of a Canadian drilling contractor working in Alaska for over six consecutive months on a contract held by the Canadian drilling contractor's U.S. parent corporation is entitled to the credit.

93 CPTJ - Q.7

In order for the individual to qualify, she must be employed by a specified employer for a period of more than six consecutive months outside Canada. The period is considered to commence on the day she first performs her duties of employment outside Canada and to end with the day she ceases to perform those duties.

93 CPTJ - Q.6

Generally, where a specified employer is carrying on business outside Canada and has a subcontract to provide operating support services through its employees to another Canadian or foreign company which is either carrying on a qualified activity or has a contract to carry on a qualified activity in a country other than Canada, its employees will be eligible to claim the credit provided the other criteria are met.

18 June 1993 T.I. (Tax Window, No. 32, p. 15, ¶2611)

Activities of developing computer software must involve the use of engineering knowledge in order to be considered an engineering activity, and the provision of instruction and advice on computer programs and maintenance will not be qualified activities. An employer will not be considered to be carrying on business in the foreign country unless the activity is a principal activity of the employer.

18 June 1993 T.I. (Tax Window, No. 32, p. 5, ¶2596)

Re application of "all or substantially all" a test where for each month an employee works in a foreign jurisdiction he has one month off and during that time is permitted to engage in other activities.


Pooja Samtani, "Employees on Foreign Ground: The Overseas Employment Tax Credit", Taxation of Executive Compensation and Retirement, Vol. 17, No. 8, April 2006, p. 663.

John Mill, "Canada's Overseas Employment Tax Credit", Tax Notes International, Vol. 35 No. 11, 13 September 2004, p. 995.

Paragraph 122.3(1)(a)

Administrative Policy

2 February 2006 External T.I. 2005-0152871E5 F - Crédit d'impôt pour emploi à l'étranger

partial funding under Reg. 3400 international development assistance program precludes credit

An employee supervises three construction projects in a foreign country, one of which is partially funded by a Reg. 3400 international development assistance program.

In finding that the employee is ineligible for the OETC for the portion of employment income reasonably attributable to the two out of three projects not funded by such program, CRA stated:

[S]ince section 3400 of the Regulations does not provide for a minimum percentage of funding, a contract that is funded, even in part, by that type of program is a prescribed program of international development assistance. Finally, the wording of paragraphs 122.3(1)(c) and (d) does not allow the portion of an individual's employment income attributable to services rendered under a prescribed international development assistance program in respect of a project to be excluded from the individual's income for the year from that employment.

18 April 2005 External T.I. 2004-0096231E5 F - Déduction de l'impôt payable - emploi à l'étranger

severance allowance not employment income until year of receipt

The taxpayer, a Canadian resident, ceased employment abroad by his Canadian employer in 2001 and was paid a separation allowance in 2002. CRA indicated that because the separation allowance (even if it was employment income rather than a retiring allowance) would have been employment income in 2002 (when he was no longer employed abroad) rather than in 2001, it could not qualify for the deduction under s. 122.3.

Paragraph 122.3(1)(b)

Administrative Policy

2 November 2011 External T.I. 2011-0413641E5 F - CIEE

qualifying activities determined by reference to the employer’s business rather than employee’s activities

[T]he employer resident in Canada, which carries on a business of operating a fleet of vessels providing transportation services, signed a contract for a Chinese manufacturer to construct vessels to be acquired by it, and sent two engineers to China for over 24 months to ensure compliance with plans and specifications. Their period of employment abroad is greater than 24 consecutive months.

After referring to the scope of qualifying activities in s. 122.3(1)(b), CRA stated:

[T]he employer would not be engaged in a qualifying activity because it carries on a marine transportation business and not any of the above.

As a result, the salaries paid to engineers dispatched to China would not qualify for the OETC.

5 November 2010 External T.I. 2010-0383871E5 F - Crédit d'impôt pour emploi à l'étranger

could perform “substantially all” employment duties abroad if less than 10% of the time spent in Canada on preparatory work

Before employees go abroad to perform under the contract, they must work in Quebec to prepare and ship the equipment needed for the work to be performed overseas. Are they eligible for the OETC while they are still on Canadian soil and performing preparatory work under that contract? In its summary, CRA indicated, likely yes, and in the body stated:

The "all or substantially all" test is generally considered to have been met if 90% of the employment duties were performed outside Canada. … For example, if the qualifying period is 14 continuous months, and assuming that the employment duties are performed consistently over the period, the employee would not normally be expected to spend more than 1.4 months (10% of 14) in Canada performing the duties of employment that would otherwise qualify for the OETC.

Words and Phrases
substantially all

Subparagraph 122.3(1)(b)(i)

Clause 122.3(1)(b)(i)(A)

See Also

Humber v. The Queen, 2010 DTC 1170 [at 3371], 2010 TCC 253 (Informal Procedure)

The employer of the taxpayer, which operated and administered a college of applied arts and technology in Qatar, whose activities included the teaching of engineering, was not engaged in a business "with respect to ... any ... engineering activity" as required by s. 122.3(1)(b)(i)(A).

Clause 122.3(1)(b)(i)(B)

Administrative Policy

9 November 2016 External T.I. 2014-0537121E5 F - Overseas employment tax credit

marine dredging to maintain or widen channel is construction

Do marine dredging activities (i.e., the excavation of sediments from the seabed to allow or facilitate marine traffic) qualify as part of a construction project under s. 122.3(1)(b)(i)(B)? CRA responded:

[D]redging to allow shipping traffic through the creation of channels could constitute a construction project within the meaning of clause 122.3(1)(b)(i)(B).

There is nothing to exclude the possibility that maintenance or expansion of existing channels may also represent a construction project… .

[T]herefore… channel maintenance or widening may also be a construction project… .

Words and Phrases

Paragraph 122.3(1)(d)

Administrative Policy

10 December 2012 External T.I. 2011-0429721E5 F - OETC - Employee stock options benefits

s. 7(1)(a) benefit apportioned based on Canadian and overseas duties performed - generally in year options issued

A resident employee, who exercises employee stock options a few years after their grant by the corporate employer, performed duties both in Canada and abroad at the time of the granting and/or exercise of the options, and all the conditions for the granting of the OETC under s. 122.3 (1) were met. Does the s. 7(1)(a) benefit qualify in part or in full for OETC purposes? CRA responded:

Whether, in a particular situation, the amount of the employment benefit calculated under paragraph 7(1)(a) relates to duties performed outside Canada during a qualifying period under section 122.3 is a question of fact ... . However, the CRA's long-standing position is that … the amount of the employment benefit calculated in paragraph 7(1)(a) generally relates to the duties performed during the year in which stock options are granted unless the facts, circumstances and relevant documents clearly demonstrate that the options were granted to compensate for future services.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 115 - Subsection 115(1) - Paragraph 115(1)(a) - Subparagraph 115(1)(a)(i) s. 7(1)(a) benefit generally relates to duties performed in the grant year 173

Subsection 122.3(1.01) - Specified amount

Administrative Policy

30 January 2015 External T.I. 2014-0521751E5 - overseas employment tax credit

"extension" of contract one day after it expired could result in a new contract

A resident individual contracted a "specified employer" prior to March 29, 2012 and, on January 1, 2013, one day after the contract expired, agreed with the employer to extend the original contract for another year. Would the extended contract be a contract "committed to in writing before March 29, 2012" for purposes of s. 122.3(1.01)? CRA stated:

[I]t appears that the extension of the original contract was agreed to one day after the original contract expired. Where the extension of a contract is agreed to on a date that occurs after the original contract has already expired, for purposes of the OETC, we would generally be of the view that the parties have entered into a new contract rather than merely extending the old contract unless the taxpayer can demonstrate otherwise under the governing private law.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Transitional Provisions and Policies "extension" of contract one day after it expired could result in a new contract 136

Subsection 122.3(1.1)

Paragraph 122.3(1.1)(a)

Administrative Policy

28 April 2008 External T.I. 2007-0248761E5 F - Crédit d'impôt pour emploi à l'étranger

s. 122.3(1.1)(a) inapplicable where the individual’s corporation was retained for project abroad by arm’s length Canadian corporation

A corporation of which an engineer was an employee and shareholder and which provided project operations management services in the industrial sector received an offer from a Montreal engineering corporation to organize and participate in all stages of the commissioning of a new plant that that the corporation (or its US division) is building abroad. In order to fulfill the contract, the corporation would send the engineer as an employee for a number of weeks to the site, with some periods of return home for rest during that period. CRA stated:

[E]ven if it were reasonable to consider you to be an employee of XXXXXXXXXX engineering corporation, but for the existence of your corporation, subsection 122.3(1.1) would not apply any more than if it were not reasonable to consider you to be an employee of a person or partnership other than your corporation.

Paragraph 122.3(1.1)(c)

See Also

Gillespsie v. The Queen, 2009 DTC 295, 2009 TCC 26

The taxpayer accepted an assignment with a company ("Elbit") in Venezuela to work on the maintenance of fighter aircraft and, in order to limit personal liability, incorporated a company to perform the work for Elbit. In finding that, but for the incorporated company, the taxpayer would have been an employee of Elbit, Margeson, J. noted that the taxpayer was working on one project only, was not free to do work for any other party, was told by Elbit when to do the work and the number of hours to work in a week, and that the workers who reported to the taxpayer were provided by Elbit through the Venezuelan air force. He also stated (at para. 30), after noting that the taxpayer was performing very technical work that "it is no longer acceptable to find that a worker who is not told how to do a job makes that worker an independent contractor".