Principal Issues: [TaxInterpretations translation]
In the course of his employment, an employee supervises three construction projects in a foreign country, one of which is partially funded by a Regulation 3400 international development assistance program.
If the conditions in paragraph 122.3(1)(b) of the Act are satisfied, will the employee be eligible for the OETC on the portion of employment income reasonably attributable to the two out of three projects that are not funded by an international development assistance program?
Position:
No.
Reasons:
Interpretation of the Act.
XXXXXXXXXX 2005-015287 Danielle Bouffard February 2, 2006
Dear Madam:
Subject: Section 122.3 of the Income Tax Act (the "Act")
Overseas Employment Tax Credit ("OETC")
This is in response to your letter of September 29, 2005, requesting our opinion on the above subject. We apologize for the delay in responding to this request.
Facts
An engineering firm operates an overseas business as a prime contractor on numerous construction projects in West African countries (the "Employer"). The Employer is a "specified employer" within the meaning of subsection 122.3(2).
An engineer ("Employee") has signed a two-year contract with the Employer to supervise three construction projects to be carried out simultaneously in one of those West African countries. One of those projects is partially funded by a CIDA International Development Assistance Program under Section 3400 of the Income Tax Regulations. The Employee is established in that country for the duration of the contract. The Employee will perform all or substantially all of the duties of the employment abroad. The employee prepares a weekly time sheet in which he indicates the number of hours worked on each of the three projects.
Question
If the conditions in paragraph 122.3(1)(b) are satisfied, will the Employee be eligible for the OETC on the portion of employment income reasonably attributable to the two out of three projects that are not funded by an international development assistance program?
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is the practice of the Canada Revenue Agency (the "CRA") not to issue written opinions on proposed transactions otherwise than through advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that 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 that we hope may be helpful to you. These comments may, however, under certain circumstances, not apply to your particular situation.
To be eligible for the OETC under subsection 122.3(1), an individual who is resident in Canada in a taxation year must, throughout a period of more than six consecutive months beginning in the year
- have been employed by a person who was a specified employer, other than for the performance of services under a prescribed international development assistance program of the Government of Canada, and
- have performed all or substantially all the duties of the individual’s employment outside Canada in connection with a contract under which the specified employer carried on business outside Canada with respect to the exploration for or exploitation of petroleum, natural gas, minerals or other similar resources, any construction, installation, agricultural or engineering activity, or any prescribed activity, as the case may be.
Where a contract of a specified employer in a foreign country is funded by a Regulation 3400 program, it is our view that an employee assigned to perform duties in that country is not eligible to claim an OETC on the income earned from that employment. In our view, since 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. These comments are not advance income tax rulings and are not binding on the CRA in respect of any particular factual situation.
Best regards,
Alain Godin
For the Director
International Operations and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch