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 CCRA.

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

Principal Issues: grandfathering if amendment to OM

Position: yes

Reasons: changes not substantial in context of overall Offering

		2001-011471
XXXXXXXXXX 	Denise Dalphy, LL.B.
(613) 957-9231
December 18, 2001

Dear XXXXXXXXXX:

Re: Proposed Grandfathering of Draft Amendments to Section 18.1 of the Income Tax Act (the "Act")

We are writing in reply to your letter dated December 10, 2001 wherein you enquired about our interpretation of certain transitional relief, if enacted.

BACKGROUND

On September 18, 2001 a detailed Notice of Ways and Means Motion to amend the Act in respect of matchable expenditures was tabled in the House of Commons. Although it was proposed that these amendments would generally apply to expenditures made on or after September 18, 2001, transitional relief was described in subsection (2) of the Notice of Ways and Means Motion. Paragraph (2)(a) therein provides:

"(2) Subsection (1) applies in respect of expenditures made by a taxpayer on or after September 18, 2001 in respect of a right to receive production, (in this subsection referred to as the "right"), except if

(a) the expenditure is

(i) required to be made under a written agreement made by the taxpayer before September 18, 2001,[officials of the Department of Finance have agreed to recommend additional transitional relief to the Minister of Finance]

(ii) made under, or described in, the terms of a prospectus, preliminary prospectus or registration statement that is, before September 18, 2001, filed with a public authority in Canada in accordance with the securities legislation of Canada or of a province and, if required by law, accepted for filing by the public authority before September 18, 2001, or

(iii) made under, or described in, the terms of an offering memorandum distributed as part of an offering of securities if

(A) the memorandum contains a complete, or substantially complete, description of the securities contemplated in the offering as well as the terms and conditions of the offering,

(B) the memorandum was distributed before September 18, 2001,

(C) solicitations in respect of a sale of the securities contemplated in the offering have been made before September 18, 2001, and

(D) the sale of the securites contemplated in the offering is substantially in accordance with the memorandum;"

The above proposals for transitional relief were expanded, as described in letters dated October 26 and November 5, 2001 from Mr. Len Farber, of the Department of Finance, to The Canadian Motion Picture Distributors Association. If enacted, this legislation would extend the transitional relief to certain production expenditures made between January 1, 2001 and March 31, 2002.

FACTS

Our understanding of the circumstances that you have asked us to consider is as follows:

1. A number of investors purchased Units (the "Units") in a Master Limited Partnership that is in the business of providing, directly or indirectly through other limited partnerships, production services for film and television productions.

2. Units were purchased pursuant to an Offering Memorandum that was issued before September 18, 2001.

3. The Offering Memorandum provided that the Master Limited Partnership would acquire interests in a particular production services limited partnership. It also contemplated the acquisition in the 2001 calendar year of interests in other productions services limited partnerships in the business of providing production services for film and television productions.

4. The Offering Memorandum contemplated that the offering of Units would be made in tranches and on a continuous basis until December 31, 2001.

5. The Master Limited Partnership will continue to issue Units in the Master Limited Partnership in December 2001.

6. The Master Limited Partnership will, in accordance with the original terms of the Offering Memorandum, continue to acquire production services limited partnerships that have made expenditures in respect of a production before September 18, 2001.

7. The Offering Memorandum and the Master Limited Partnership Agreement were amended in December 2001 to provide that Units purchased by limited partners after a particular date in December 2001 and before January 1, 2002 would have different income and loss characteristics than those of the Units sold prior to that time.

8. The Offering Memorandum and Master Limited Partnership Agreement were amended for the purpose of ensuring that limited partners who had invested in the Master Limited Partnership before a particular date in December 2001 would not be prejudiced with the allocation of income and losses projected to be allocated between the 2001 and 2002 taxation years.

OUR COMMENTS

Written confirmation of the consequences inherent in particular transactions are given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4 (the "Circular"). Where the particular transactions are partially completed or completed, the enquiry should be addressed to the relevant Tax Services Office. Notwithstanding the foregoing, we are providing the following comments.

In our view, the amendments described above to an Offering Memorandum and a Master Limited Partnership Agreement would not, in and of themselves, contravene the requirements of either clause (2)(a)(iii)(A) or (D) of the aforementioned Notice of Way and Means Motion.

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of the Circular, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Customs and Revenue Agency. Our practice is to make this specific disclaimer in all instances in which we provide an opinion.

Further, the above opinion should not be construed as an indication of any income tax consequences relating to an investment in a film partnership, other than as provided above. In particular, we express no opinion on:

(a) whether any other conditions in the proposed grandfathering (either in the Notice of Ways and Means Motion or in the Oct 26, 2001 and Nov 5, 2001 letters from the Department of Finance) of the draft amendments to section 18.1 of the Act will be satisfied;

(b) whether any party is legally obligated to pay for an expenditure;

(c) whether any expenditure is reasonable;

(d) the fair market value of any expenditure;

(e) whether of any of the parties carries on business or carries on business with a reasonable expectation of profit;

(f) whether, or the time when, any expenditure may be deducted in computing income under the Act; or

(g) whether an agency relationship exists between any parties.

Yours truly,

Steve Tevlin
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

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