Principal Issues: Whether dredging work could be considered “construction” for the purposes of clause 122.3(1)(b)(i)(B)?
Position: Yes
Reasons: Based on the broad interpretation the courts have given to the term "construction".
XXXXXXXXXX 2014-053712
Sylvain Grégoire
November 9, 2016
XXXXXXXXXX,
Overseas Employment Tax Credit
This is in response to your e-mail of June 19, 2014 in which you requested our opinion regarding the application of section 122.3 concerning the overseas employment tax credit ("OETC"). More specifically, you inquired as to whether marine dredging activities are carried out as part of a construction project within the meaning of clause 122.3(1)(b)(i)(B). We understand that dredging is essentially the excavation of sediments from the seabed to allow or facilitate marine traffic. Essentially, we understand that it is the creation, maintenance or deepening of channels used by ships.
We apologize for the delay in responding to your request.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
Our comments
This technical interpretation provides general comments on the provisions of the Act and related legislation, where referenced. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
The Act does not contain any definition of "construction" in clause 122.3(1)(b)(i)(B). It is therefore our view that this term should be given its ordinary meaning while taking into account the overall context of the text in which it is used in such a way that the interpretation adopted is in harmony with the purpose and spirit of the Act. Reference is made to the legislative intent, in particular, in the March 1996 Budget Plan published by the Department of Finance on page 194 which reads, in part, as follows:
The primary purpose of this credit is to ensure that Canadian firms, employing Canadian staff, are in a position to compete against foreign firms in bidding on overseas work.
Thus, we are of the view that a liberal interpretation should be adopted in determining the meaning of "construction" in clause 122.3(1)(b)(i)(B) in order to give effect to this intention of Parliament.
In Anglo-Canadian Oil Co. Ltd. v. M.N.R. [1947] C.T.C. 47 (Court of Appeal), the Court offered the following comments on the interpretation of the term "construction:"
If one can speak of the "construction" of a canal one can also, I think, speak correctly of the "construction" of an oil well. Both are excavations in the ground, one horizontal and the other vertical (p. 56)
It is clear from this extract that there is no objection to the excavation being a construction activity in the broad sense of the term. Therefore, we are of the view that dredging 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 within the meaning of clause 122.3(1)(b)(i)(B) since in the case Nova Construction Company Ltd. v Her Majesty the Queen (FCTD) 83 DTC 5105 (judgment affirmed by the Federal Court of Appeal 85 DTC 5595), the meaning of the term "construction" was determined as follows:
Construction is not a term of art. The paving of roads, parking lots, and so on, is construction. That is so whether the paving is the initial application of pavement of a newly constructed grade, the maintenance and repair of an old pavement or a combination as in the case of a road widening and reconstruction (p. 5106).
The Court has thus liberally interpreted the term 'construction' by considering that the maintenance or widening of a road also constitutes construction activities. We are therefore of the view that channel maintenance or widening may also be a construction project within the meaning of clause 122.3(1)(b)(i)(B).
It is important to note that the OETC has been generally phased out between 2013 to 2015, to be completely repealed as of the 2016 taxation year.
We trust that our comments will be of assistance.
Dave Beaulne, CPA, CA
Section Manager
For the Director
International Operations Division
Income Tax Rulings Directorate
Legislative Policy And Regulatory Affairs Branch