Income Tax Act

Marginal note:Deduction from tax payable where employment out of Canada

• 122.3 (1) Where an individual is resident in Canada in a taxation year and, throughout any period of more than 6 consecutive months that commenced before the end of the year and included any part of the year (in this subsection referred to as the “qualifying period”)

  • (a) was 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

  • (b) performed all or substantially all the duties of the individual’s employment outside Canada

    • (i) in connection with a contract under which the specified employer carried on business outside Canada with respect to

      • (A) the exploration for or exploitation of petroleum, natural gas, minerals or other similar resources,

      • (B) any construction, installation, agricultural or engineering activity, or

      • (C) any prescribed activity, or

    • (ii) for the purpose of obtaining, on behalf of the specified employer, a contract to undertake any of the activities referred to in clause 122.3(1)(b)(i)(A), 122.3(1)(b)(i)(B) or 122.3(1)(b)(i)(C),

  there may be deducted, from the amount that would, but for this section, be the individual’s tax payable under this Part for the year, an amount equal to that proportion of the tax otherwise payable under this Part for the year by the individual that the lesser of

  • (c) an amount equal to that proportion of $80,000 that the number of days

    • (i) in that portion of the qualifying period that is in the year, and

    • (ii) on which the individual was resident in Canada

    is of 365, and

  • (d) 80% of the individual’s income for the year from that employment that is reasonably attributable to duties performed on the days referred to in paragraph 122.3(1)(c)

  is of

  • (e) the amount, if any, by which

    • (i) if the individual is resident in Canada throughout the year, the individual’s income for the year, and

    • (ii) if the individual is non-resident at any time in the year, the amount determined under paragraph 114(a) in respect of the taxpayer for the year

    exceeds

    • (iii) the total of all amounts each of which is an amount deducted under section 110.6 or paragraph 111(1)(b), or deductible under paragraph 110(1)(d.2), (d.3), (f), (g) or (j), in computing the individual’s taxable income for the year.

• Marginal note:Excluded Income

  (1.1) No amount may be included under paragraph 122.3(1)(d) in respect of an individual’s income for a taxation year from the individual’s employment by an employer where

  • (a) the employer carries on a business of providing services and does not employ in the business throughout the year more than 5 full-time employees;

  • (b) the individual

    • (i) does not deal at arm’s length with the employer, or is a specified shareholder of the employer, or

    • (ii) where the employer is a partnership, does not deal at arm’s length with a member of the partnership, or is a specified shareholder of a member of the partnership; and

  • (c) but for the existence of the employer, the individual would reasonably be regarded as an employee of a person or partnership that is not a specified employer.

• Marginal note:Definitions

  (2) In subsection 122.3(1),

  specified employer

  employeur déterminé

  specified employer means

  • (a) a person resident in Canada,

  • (b) a partnership in which interests that exceed in total value 10% of the fair market value of all interests in the partnership are owned by persons resident in Canada or corporations controlled by persons resident in Canada, or

  • (c) a corporation that is a foreign affiliate of a person resident in Canada; (employeur déterminé)

  tax otherwise payable under this Part for the year

  impôt qu’il est par ailleurs tenu de payer pour l’année en vertu de la présente partie

  tax otherwise payable under this Part for the year means the amount that, but for this section, sections 120 and 120.2, subsection 120.4(2) and sections 121, 126, 127 and 127.4, would be the tax payable under this Part for the year. (impôt qu’il est par ailleurs tenu de payer pour l’année en vertu de la présente partie)