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: whether payments to writers are taxable
Position: yes
Reasons: not a windfall; possibly royalty payments; section 9 or 12(1)(x) will apply
2002-013948
XXXXXXXXXX Denise Dalphy, LL.B.
(613) 941-1722
June 25, 2002
Dear XXXXXXXXXX:
Re: Payments under the Public Lending Rights Commission
We are writing in reply to your letters dated February 26 and May 6, 2002 wherein you enquired about the income tax consequences of payments made by the Canada Council under the Public Lending Rights Commission (the "PLRC").
Our understanding of the facts is as follows:
1. The PLRC was established in 1986 to administer a program of payments to Canadian authors in recognition of the benefits Canadians receive from having access to an author's book at a public library.
2. The PLRC is administered by a board of 19 members representing national associations of authors, librarians and publishers.
3. Operating under the administrative aegis of the Canada Council, the PLRC receives funding from Parliament through the Department of Canadian Heritage.
4. Authors who wish to receive payments under the PLRC register with the PLRC a list of titles, which the author believes to qualify for the program. The PLRC payments are determined by sampling the holdings of a representative number of libraries; the more libraries in which an eligible title is found, the larger the PLRC payment. Payments are made on the basis of library holdings, and not the amount of times the book was borrowed. The PLRC paid a total of $9,653,043 to 13,269 authors in 2001-2002 in respect of 50,878 titles, for an average payment per author of $727. The maximum payment to a particular writer is $3,675.
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 70-6R5. 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, based on the criteria enumerated by the Federal Court of Appeal in Cranswick (82 DTC 6073), the above payments could not be considered a windfall.
We cannot confirm whether a payment is or is not a royalty or similar payment other than in the context of an advance income tax ruling. However, given the comments of the Court in Vauban Productions (75 DTC 5371) with respect to the normal meaning of the term "royalty" that a royalty may include "a percentage of profits based on use or on the number of copies or articles sold, rented or used", and given the broad interpretation of "royalty" in the context of "Net profits interests" in the oil and gas sector, it is possible that payments made to authors on the basis of the number of his or her books owned by a library, may be a "royalty". However, based on our limited information, it would seem more likely that section 9 or paragraph 12(1)(x) of the Income Tax Act would apply
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R5, 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.
Yours truly,
Steve Tevlin
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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