24 February 2010 External T.I. 2009-0350931E5 - Status Indians and Film Tax Credit

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: Whether a corporation would be disqualified from the definition of a "Prescribed Taxable Canadian Corporation" under subsection 1106(2) of the Regulations solely by reason that the corporation is controlled by status Indians whose income is exempt from tax by virtue of section 87 of the Indian Act and paragraph 81(1)(a) of the Income Tax Act.

Position: No.

Reasons: 1106(2) of the Regulations precludes a corporation from the definition of a prescribed taxable Canadian Corporation where it is controlled directly or indirectly in any manner whatever by one or more persons all or part of whose "taxable income" is exempt from tax under Part I of the Act. The income of a status Indian that is not included in the computation of income by virtue of paragraph 81(1)(a) (Division B) is not "taxable income" under Part I.

XXXXXXXXXX                                      2009-035093
                                                Rob Ferrari
February 24, 2010

Dear XXXXXXXXXX

Re: Status Indians and Canadian Film and Video Production Tax Credit

We are writing in response to your letter of December 1, 2009, requesting our views with respect to the Canadian film and video production tax credit (the "CFVPTC") as provided for under section 125.4 of the Income Tax Act (the "Act").

In particular, you ask whether a corporation would not meet the requirements set out in the definition of a "prescribed taxable Canadian corporation" under subsection 1106(2) of the Income Tax Regulations (the "Regulations") by reason that the corporation is controlled by status Indians. Our comments assume that all persons are residents of Canada.

Our Comments

We are able to provide you with the following general comments that may be of assistance.

In order for a corporation to qualify for the CFVPTC, it must, among other things, fall within the definition of a "qualified corporation" under subsection 125.4(1) of the Act. To meet the definition of a qualified corporation, the corporation must be a "prescribed taxable Canadian corporation" under subsection 1106(2) of the Regulations. Pursuant to paragraph 1106(2)(a) of the Regulations, a corporation will not be a prescribed taxable Canadian corporation where it is "controlled directly or indirectly in any manner whatever by one or more persons all or part of whose taxable income is exempt from tax under Part I of the Act".

"Taxable income" is defined in subsection 2(2) of the Act as the taxpayer's income for the year plus the additions and minus the deductions permitted by Division C. The computation of income under Part I of the Act is determined in accordance with the rules provided for in Division B.

Paragraph 81(1)(a) (Division B) of the Act, together with paragraph 87(1)(b) of the Indian Act, provides that certain income of status Indians is not to be included in the computation of the taxpayer's income. Subsection 81(1) and paragraph 81(1)(a) of the Act state the following:

There shall not be included in computing the income of a taxpayer for a taxation year,

(a) an amount that is declared to be exempt from income tax by any other enactment of Parliament, other than an amount received or receivable by an individual that is exempt by virtue of a provision contained in a tax convention or agreement with another country that has the force of law in Canada;

It follows then that the income of a status Indian that is not included in the "computation of income" under Division B pursuant to paragraph 81(1)(a), will not be "taxable income" under subsection 2(2) of the Act. Accordingly, a corporation controlled or owned by an Indian would not be excluded from the definition of a prescribed taxable Canadian corporation solely by reason that the corporation is controlled by shareholders that are status Indians who have earned income that is exempt from taxation by virtue of section 87 of the Indian Act.

You have enquired about the meaning of the expression "exempt from tax under Part 1 of the Act" in Regulation 1106(2)(a) discussed above. Subsection 149(1) "miscellaneous exemptions" (Division H) contains several provisions under which no tax is payable under Part I of the Act on the taxable income of certain persons (as defined in subsection 248(1)). These are the types of persons whose "taxable income" is exempt from tax as contemplated in paragraph 1106(2)(a) of the Regulations. For example, employees of a country other than Canada under paragraph 149(1)(a), public bodies performing a function of government under paragraph 149(1)(c), labour organizations under paragraph 149(1)(k) and non-profit organizations paragraph 149(1)(l).

We hope that our comments will be of assistance to you.

Yours truly,

G. Moore
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch