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.
Principal Issues: Request to confirm their understanding of the tax treatment of certain fees received by a producer in respect of a particular production.
Position: Confirmed that there would be no double counting of the amount received or paid.
Reasons: Reading of the law.
XXXXXXXXXX Allan Nelson, C.M.A
April 12, 2006
Re: Class 10(x) Assets
Technical Opinion Request
This is in reply to your letter to us dated January 20, 2006. You describe a hypothetical situation where a Canadian production company ("Prodco") would otherwise be eligible to claim the Canadian film or video production tax credit under section 125.4 of the Income Tax Act in respect of a particular production. Prodco receives, for example, a television license fee from a broadcaster, or a distribution fee from a film or television distributor (referred to in this letter as the "Fees").
You asked us to confirm your understanding of the proper income tax treatment of the Fees.
As explained in Information Circular 70-6R5, dated May 17, 2002, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. However, as requested, we can generally confirm the following:
1. To the extent that the Fees paid by the "Payor" to Prodco should appropriately be treated as current income for the purpose of computing Prodco's taxable income for a particular taxation year, these Fees would not also be characterized as Prodco's proceeds of disposition for a portion of its ownership interest in the production, nor would those Fees be characterized as the Payor's cost to acquire an ownership interest in the production (i.e., the Fees will not be double counted by including them in Prodco's income and also reducing Prodco's undepreciated capital cost of the production); and
2. To the extent that the Fees received by Prodco in a taxation year from the Payor are to be treated as proceeds of disposition for a portion of Prodco's ownership interest in a production and this results in a corresponding reduction to Prodco's undepreciated capital cost of that production, these Fees would not also be characterized as current income for the purpose of computing Prodco's taxable income for that taxation year (i.e., the Fees will not be double counted by reducing Prodco's undepreciated capital cost of the production and also including them in Prodco's current income).
In accordance with paragraph 22 of Information Circular 70-6R5, the above comments are only an expression of opinion, and as such should not be construed as an advance income tax ruling. The taxation of the Fees would always involve a question of fact that could only be determined after reviewing all the relevant information and documentation for a particular case.
We hope this information will be of assistance to you.
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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