19 June 1996 External T.I. 9611705 - OVERSEAS EMPLOYMENT TAX CREDIT

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether the all and substantially all test applies to a particular employment with the specified employment or to all employments

Position:

To the particular employment with the specified employer; however, we cautioned the client of possible application of GAAR if abuse arises

Reasons:

The main reason is the use of the words "that employment" in paragraph 122.3(1)(d); the introduction of new provisions on the 1996 Federal Budget to prohibit use of personal service corporaton in this regard also helps to lessen potential abuse of such an interpretation.

		961170
XXXXXXXXXX	S. Leung

Attention: XXXXXXXXXX

June 19, 1996

Dear Sirs:

Re: Overseas Employment Tax Credit

We are writing in response to your letter of March 29, 1996 in which you requested our view as to whether, under paragraph 122.3(1)(b) of the Income Tax Act (the "Act"), the requirement that all or substantially all of the duties of an individual's employment must be performed by the individual outside Canada applies to his or her employment with the specified employer or with all employers. For example, where the individual is employed by a different employer ("second employer") on his or her days off from the specified employer ("first employer"), you enquired whether such employment would be taken into account to determine whether the all and substantially all test stipulated in paragraph 122.3(1)(b) of the Act is met.

It is our view that the all and substantially all test generally applies to the duties of employment performed by the individual outside Canada with the specified employer in connection with a contract under which the specified employer carried on business outside Canada with respect to qualified activities described in clauses 122.3(1)(b)(i)(A) to (C) of the Act or for the purpose of obtaining a contract on behalf of the specified employer described in subparagraph 122.3(1)(b)(ii) of the Act.

Having said that, in the example you provided, it is a question of fact whether the individual is still an employee of the first employer during his or her "days off" when he or she works for the second employer and whether all the other conditions specified in subsection 122.3(1) of the Act are met. It is also a question of fact whether the "days off" constitutes a normal time off in the particular industry of the specified employer. Since there are so many unknown variables which may affect the determination of eligibility for the overseas employment tax credit in the example provided by you, we suggest that actual cases be referred with all the relevant facts to the appropriate Tax Services Office.

Where the first employer and the second employer are parties who do not deal with each other at arm's length and it can be established that the arrangement can reasonably be regarded as an avoidance transaction as referred to in subsection 245(3) of the Act, the Department may apply subsection 245(2) of the Act to deny any tax benefit conferred on the individual in respect of the overseas employment tax credit.

The above comments represent our general views with respect to the subject matter of your letter. These comments do not constitute an advance income tax ruling and therefore, as described in paragraph 21 of Information Circular 70-6R2, are not binding on the Department.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch