14 December 2000 External T.I. 2000-0046925 - Film Tax Credits

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 sub-contracted labour expenditures would qualify for the film or video production tax credit and the film or video production services tax credit for the purposes of section 125.4 and 125.5 of the Act.

Position:

Generally, such expenditures do not qualify. However, on an administrative basis, such expenditures will be allowed to qualify as labour expenditure of a qualified corporation in the manner and to the extent provided in the definition of "labour expenditure" and provided that there is no double billing by subcontractors.

This position will also apply in respect of the definition of "Canadian labour expenditure" under subsection 125.5(1)

Reasons:

The intent of the law as supported by the Department of Finance.

XXXXXXXXXX 							Frank Fontaine
								2000-004692
Attention:  XXXXXXXXXX 

December 14, 2000

Dear Sirs:

Re: Film Tax Credit Rules and Sub-contracted Labour

This is in reply to your letter dated September 14, 2000 concerning the subcontracting of the services of independent contractors by service corporations which are engaged by production companies to provide work in the production of Canadian films and video productions. You asked whether the particular sub-contracted labour expenditures would qualify for the film or video production tax credit or the film or video production services tax credit for the purposes of section 125.4 or 125.5 of the Income Tax Act (the "Act"), respectively.

Technically, payments made by a service corporation to subcontractors in respect of work carried out for a production company generally would not be included in the "labour expenditure" of the "qualified corporation", as these terms are used in subsection 125.4(1) of the Act. However, in the particular circumstances described, the Canada Customs and Revenue Agency (CCRA) is prepared, on an administrative basis, to allow payments made by a service corporation for sub-contracted labour incurred in the production of film and video production work to qualify as labour expenditure of the qualified corporation, provided that:

(i) such expenditure is reflected in an amount paid by the qualified corporation in the manner and to the extent provided in the definition of "labour expenditure" under subsection 125.4(1) of the Act; and

(ii) there is no "double-billing" by sub-contractors to more than one production (i.e., sub-contractors are not charging an amount for the same services to more than one production).

This administrative position would also apply to determine the "Canadian labour expenditure" described under subsection 125.5(1) of the Act in respect of the film or video production services tax credit.

The application of the 65% administrative position in respect of a service provider's invoice amount that you mentioned is an audit function. For comments thereon, we would refer you to Guide RC4164 (to Form T1131) entitled "Claiming a Canadian Film or Video Production Tax Credit" and, specifically, Part 5 thereof. This Guide can also be accessed under the CCRA's Internet site at www.ccra-adrc.gc.ca.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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