Principal Issues: [TaxInterpretations] The taxpayer wishes to know if he can take advantage of the OETC while the taxpayer’s employer, a marine carrier, has sent the taxpayer to supervise engineering work during the construction of XXXXXXXXXX done by a third party abroad.
Position: No
Reasons: Since the employer is a marine carrier, it does not itself carry out any qualifying activities within the meaning of the Act.
XXXXXXXXXX 2011-041364 Nancy Turgeon, CGA November 2, 2011
Dear Madam/Sir,
Subject: Overseas employment tax credit
This is in response to your letter of April 15, 2011 in which you requested our opinion as to the eligibility of certain salaries for the overseas employment tax credit ("OETC").
You described a situation where the employer resident in Canada carries on a business that owns and operates a fleet of vessels providing XXXXXXXXXX transportation services.
Some time ago, the employer signed a contract to build several XXXXXXXXXXs with a XXXXXXXXXX in China. Due to the importance of the order placed with the Chinese manufacturer, the employer has delegated an XXXXXXXXXX engineer, as well as a XXXXXXXXXX engineer, to ensure compliance with plans and specifications. Their period of employment abroad is greater than 24 consecutive months.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act ("the Act").
The situation you described in your letter appears to be an actual situation that concerns a specific taxpayer. As explained in Information Circular 70-6R5, when determining whether a completed transaction has received adequate tax treatment, the determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments, which may be helpful to you. These comments may, however, under certain circumstances, not apply to your particular situation.
Our Comments
As stated in Interpretation Bulletin IT-497R4, Overseas Employment Tax Credit (the “Bulletin"), to qualify for the OETC, an individual must satisfy certain conditions, including the following:
(a) be employed by a specified employer (generally, a resident of Canada), other than for the performance of services under a prescribed international development assistance program of the Government of Canada;
(b) be employed in connection with a contract under which the specified employer carried on business outside Canada on a resource, construction, installation, agricultural, engineering or prescribed activity (or for the purpose of obtaining such a contract); and
(c) have performed all or substantially all the employment duties (done in connection with a contract described in (b) above) outside Canada.
More specifically, for the purposes of the OETC, an eligible activity refers to the eligible activity of the specified employer and not that of the employee. A qualifying activity includes:
(a) the exploration for or the exploitation of petroleum, natural gas, minerals or similar resources;
(b) a construction, installation, agricultural or engineering activity; or
(c) any prescribed activity. As per section 6000 of the Regulations, an activity performed under contract with the United Nations is a prescribed activity.
According to the information presented in this situation, it appears that the 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.
Interpretation Bulletin IT-497R4 contains additional information on the OETC. You will find that Bulletin on the Canada Revenue Agency Web site at http://www.cra-arc.gc.ca/menu-eng.html.Best regards,
Guy Goulet, CA, M. Fisc.
Manager
International Operations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch