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 Canadian film or video production tax credit may be reduced or eliminated?
Position: yes, depending on facts of case
Reasons: definition of "Canadian film or video production" in 1106(3)Regs
"investor rules" in 125.4 "assistance" in 125.4
XXXXXXXXXX 2000-000274
Denise Dalphy
Attention: XXXXXXXXXX (613) 957-9231
June 30, 2000
Dear XXXXXXXXXX:
Re: Film or Video Tax Credits
This is in reply to your request for our comments on the Canadian film or video production tax credit and the film or video production services tax credit.
Canadian Production Tax Credit
You have asked whether a producer's qualified labour expenditure could be reduced or eliminated where a foreign broadcaster supplies a significant amount of the budget for the production and receives some of the net revenue from the production. The short answer to your query is "yes", however the income tax consequences will depend upon the facts (including documentation such as contracts) involved in a particular transaction.
A number of requirements must be satisfied in order for Canadian production tax credits to be available. One requirement is that the production must be a "Canadian film or video production" as defined in subsection 1106(3) of the Income Tax Regulations (the "Regulations"). Treaty co-productions will generally satisfy the definition. Where a foreign broadcaster is entitled to receive a percentage of the "producer's net", it would be necessary to examine the facts and relevant contracts to determine whether the foreign broadcaster has in fact acquired an equity interest in the production or a beneficial (as opposed to legal) ownership of all or a portion of the copyright. (For example, do the facts and agreements indicate that this is a normal commercial arrangement? What is the duration of the contract? Did the funding provided by the foreign broadcaster to the producer represent a fair market value for the right to air the production? If not, does any portion of the amount paid to the producer represent the cost of legal or beneficial ownership acquired by it in the production's copyright?) If the foreign broadcaster has acquired such an interest, the production would not be a "Canadian film or video production" and tax credit would not be available to the producer.
Another requirement is that the production must not receive funds from an "investor" who may deduct an amount in respect of the production in computing its income for Canadian income tax purposes. An "investor" is defined in the Income Tax Act (the "Act") as "a person, other than a prescribed person, who is not actively engaged on a regular, continuous and substantial basis in a business carried on through a permanent establishment ... in Canada that is a Canadian film or video production business." Several entities are prescribed in subsection 1106(7) of the Regulations, which means that these are not "investors" and the production would not be precluded, on that basis, from earning Canadian production tax credits. The list of prescribed persons who are not subject to the "investor rules" includes, among others and in general terms, a non-resident person whose interest in the production is acquired to comply with the certificate requirements of a treaty co-production arrangement.
Another possible income tax consequence of a producer receiving funding from another person will arise if the amount is considered "assistance". Section 125.4 of the Act provides that the "qualified labour expenditure" of a corporation is the lesser of two computations. In the computation in paragraph 125.4(1)(b) of the Act, the eligible amount is reduced by "assistance" received in respect of the cost of the production. Whether an amount is "assistance" is a question of fact, however the term is given a broad definition in the Act.
Production Services Tax Credit
Proposed paragraph 9300(a) of the Regulations defines the term "accredited production" for the purposes of the film or video production services tax credit in section 125.5 of the Act. With respect to a "one-off" production, the total expenditures during a two year period must exceed $1 million in order to qualify as an "accredited production". Any changes to the rules governing accredited productions would require a change in policy and an amendment to the Regulations. Since tax policy issues and amendments to the legislation are the responsibility of the Department of Finance, they would have to be considered by that Department. In this regard, you should send your enquiry to the Honourable Paul Martin, Minister of Finance, House of Commons, Ottawa, Ontario, for his consideration.
If you are seriously contemplating a proposed transaction and you would like certainty of the income tax consequences of the transaction, you may wish to consider requesting an advance income tax ruling. The procedures for doing so are described in Information Circular IC-70-6R3, which is available at your local tax services office or in the Tax - Technical Publications - Income Tax area in the website: www.ccra-adrc.gc.ca.
In addition, following extensive consultations with representatives of the film industry, the Canada Customs and Revenue Agency (the "CCRA") has established several Film Service Units in designated tax services offices, which among other activities, will assist the industry in complying with Canada's tax laws. Enquiries for services performed in Ontario can be made by telephone [(416) 410-1104], by Fax [(416) 952-8334], or by writing to the following address:
Mr. Ed Gough
Film Services Unit
Toronto Centre Tax Services Office
5th floor, 1 Front Street West
Toronto ON M5J 2X6
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R3, the above comments do not constitute an income tax ruling and accordingly are not binding on the CCRA. Our practice is to make this specific disclaimer in all instances in which we provide an opinion.
Yours truly,
Paul Lynch
Manager
Partnerships Section
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
c.c.: The Honourable Paul Martin, P.C., M.P.
Minister of Finance
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2000
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2000
Email this Content