1 May 1995 GST/HST Ruling 11590-5, 11595-3, 11783-2 - Status of Production Financing

                                                                        May 1995

 XXXXX

This has reference to your letter of February 20, 1995, in which you request a review of the application ruling issued to XXXXX XXXXX by our XXXXX Excise/GST District Office concerning the status of supplies of production financing. We also refer to the copy of the sample XXXXX that you sent to us by facsimile transmission on May 11, 1995.

As you are aware, the Excise Tax Act (the Act) provides that certain activities concerning specific financial instruments are considered to qualify as supplies of financial services and are exempt supplies under the Act. The direct loans made by XXXXX are an example of such an exempt supply, as is the supply of an equity security, which is defined in the Act as "a share of the capital stock of a corporation or any interest in or right to such a share". The terms of XXXXX state that, in return for the money given to the producer, XXXXX receives from the producer a supply of an undivided proportionate ownership interest in the production, which is quite different than an ownership interest in the company that is making the production. While an ownership interest in a company may be an equity security under the Act, an ownership interest in property of the company, such as a film, is a taxable supply, as was ruled by the XXXXX Excise/GST District Office.

We have carefully reviewed the documentation that you provided concerning XXXXX counterparts in other provinces. While you have pointed out their exempt position with regard to the GST on production financing, their exemption from the GST, in fact, applies to all of their purchases. However, as XXXXX , pointed out in her April 12, 1991, letter to you, your provincial counterparts are considered to be provincial crown corporations and, in accordance with the Constitution Act, enjoy protection from taxation by another level of government. The XXXXX is not a provincial crown corporation and is, therefore, subject to the requirements of the Excise Tax Act, meaning it is required to pay the GST on purchases such as an ownership interest in a production.

Funding provided by the XXXXX to XXXXX does not attract the GST. However, when XXXXX , which is not considered part of the provincial government, in turn uses these funds to acquire goods or services, there is no provision in the Excise Tax Act that serves to exempt XXXXX from paying any GST that might be exigible. The fact that XXXXX is 100 percent funded by the provincial government entitles it to claim a 50 percent rebate for any GST paid on purchases made in connection with its exempt activities.

It should be noted that, to the extent that XXXXX is making taxable supplies, it is entitled to claim input tax credits equal to the GST paid for goods and services acquired to make these supplies.

We hope that these comments will assist you in understanding the Department's position on the equity investment form of film production financing. Should you have further questions, please do not hesitate to contact Linda Burroughsford at (613) 952-3413.

J. Sitka
A/Director
Financial Institutions and Corporate Reorganizations Division
GST Rulings and Interpretations