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.
February 1, 1980
CALGARY DISTRICT OFFICE Chief of Audit
Mr. Blair Chisholm Business Audit Section
Corporate Rulings Directorate B. Toyota (613) 995-1787
Section 125.1 Manufacturing & Processing Deduction ("MPD")
This is in reply to your memorandum of January 10, 1980 requesting clarification of paragraph 34 of IT-145 as it relates to various items claimed by XXXX in determining its MPD in view of the St. Catharines Standard Limited court case.
Generally speaking, we have accepted the decision in the above case and paragraphs 33 and 34 of IT-145 will be revised to include items previously excluded. In other words activities such as script writing, manufacture of sets and the actual filming will be qualified activities in so far as they relate to the production of video tapes for sale or lease; i.e. "live" broadcasts would not qualify nor would taping of "live" programs for editing or presentation on its own stations at a later or more convenient time. Although fees paid for news services and talent fees (actors, etc.) may be related directly to qualified activities, they would not be included in the cost of M & P labour unless these functions were performed or normally performed by employees and the amounts are also included in the total cost of labour.
To the extent that the items involved relate directly to the manufacturing and processing of video tapes for sale or lease, our answers to your specific questions are as follows:
1) The assets listed are eligible for inclusion in the cost of manufacturing and processing capital to the extent they were used directly in qualified activities, However, the rented mobile truck units may not be included if the primary use is for the presentation of live telecasts of hockey games etc. and any income from the sale or lease of the video tapes produced therefrom is incidental.
2) Acting is no longer an excluded activity, however refer to the above comments.
3) Since the TV commentators are employees of a subsidiary company we are inclined to treat any fees paid to them as "talent fees". Refer also to paragraph 18 of IT-145 for possible "double counting" effects.
4) Photographing of the shows or commercials is now considered a "qualified activity" and the salaries related thereto would be included.
We trust the above comments will be of assistance.
Chief Services, Public Utilities and Exempt Corporations Section Corporate Rulings Division Corporate Rulings Directorate Legislation Branch
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