8 December 2003 External T.I. 2003-0048425 - FOREIGN OWNERSHIP OF NEWSPAPERS

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: What are the tax implications under subsection 19(1) of the Income Tax Act when a newspaper ceases to be a "Canadian newspaper"?

Position: There is twelve-month "grace period" in which a newspaper that was previously considered a Canadian newspaper will continue to be considered so for purposes of subsection 19(1) of the Act. Once the twelve-month grace period expires, otherwise deductible advertising expenses incurred for advertisements directed at the Canadian market that are placed in such a newspaper, will be prohibited by virtue of subsection 19(1) of the Act.

Reasons: Section 19 of the Act.

Randy Hewlett, B.Comm.

XXXXXXXXXX 613-957-8973
2003-004842
December 8, 2003

Dear XXXXXXXXXX:

Re: Foreign Ownership of Newspapers

We are writing in response to your e-mail of November 12, 2003, wherein you requested our opinion on the tax implications under subsection 19(1) of the Income Tax Act (the "Act") when a newspaper ceases to be a "Canadian newspaper".

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments.

Section 19 of the Act precludes the deduction of advertising expenses to the extent that the expenses are incurred for advertisements directed at the Canadian market and placed in a newspaper or periodical that does not meet certain Canadian ownership criteria. Subsection 19(1) of the Act states:

In computing income, no deduction shall be made in respect of an otherwise deductible outlay or expense of a taxpayer for advertising space in an issue of a newspaper for an advertisement directed primarily to a market in Canada unless

(a) the issue is a Canadian issue of a Canadian newspaper; or

(b) the issue is an issue of a newspaper that would be a Canadian issue of a Canadian newspaper except that

(i) its type has been wholly set in the United States or has been partly set in the United States with the remainder having been set in Canada, or

(ii) it has been wholly printed in the United States or has been partly printed in the United States with the remainder having been printed in Canada.

Your main concern is the meaning of the term "Canadian newspaper" in paragraph 19(1)(a) of the Act and the tax implications when a newspaper ceases to be a Canadian newspaper. The term "Canadian newspaper" is defined in subsection 19(5) of the Act. To be considered a Canadian newspaper, certain Canadian ownership criteria must be met. For example, where the exclusive right to produce and publish issues of a newspaper is held by a Canadian citizen, the newspaper is considered a Canadian newspaper.

Subsection 19(7) of the Act provides that where a newspaper previously considered a Canadian newspaper ceases to be a Canadian newspaper, it is deemed to continue to be a Canadian newspaper until the end of the 12th month that follows the month in which it ceased to be a Canadian newspaper. Therefore, there is twelve-month "grace period" in which a newspaper that was previously considered a Canadian newspaper will continue to be considered so for purposes of subsection 19(1) of the Act. Once the twelve-month grace period expires, otherwise deductible advertising expenses incurred for advertisements directed at the Canadian market that are placed in such a newspaper, will be prohibited by virtue of subsection 19(1) of the Act.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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