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.
Dear Sirs:
This is in reply to your letters of December 24, 1990, and January 4, 1991 wherein you requested a technical interpretation of the meaning of the words "in respect of a prescribed film production" as found in the context of both subparagraph 96(2.2)(d)(ii) of the Income Tax Act (the "Act") and section 7500 of the Income Tax Regulations (the "Regulations"). We apologize for the delay in replying to your letter. To illustrate your question, you have provided us with the following hypothetical facts:
A revenue guarantee is given by a film or tape distributor to a limited partnership who funds the printing and advertising with respect to a production certified by the Minister of Communication for a share of the distributor's portion of the profits. However, the limited partnership does not own the film.
Your interpretation
Judge J. Dickson in the Nowegijick v. Her Majesty the Queen case, has the following comments for the words "in respect of":
"the words 'in respect of' are, in my opinion, words of the widest possible scope. They import such meanings 'in relation to', 'with reference to' or 'in connection with'. The phrase 'in respect of' is probably the widest of any expression intended to convey some connection between two related subject matters."
Therefore, a guarantee of revenue from a video distributor to a partnership who funds the printing and advertising of a video tape that is a certified production owned by another partnership is "in respect of' a "certified production" as there is some connection between the video tape and the revenue guarantee.
There is no requirement that the revenue guarantee have any connection with either the production of the video or the ownership of the video. The definition of "certified production" is a motion picture film or video tape that was commenced before the end of a particular year and completed no later than 60 days after the end of the year that meets the Canadian content requirements in subsection 1104(2) of the Regulations.
Our comments
In our opinion, the scope of the words "in respect of" as used in subparagraph 96(2.2)(d)(ii) is such that it is not necessary for the recipient of a prescribed revenue guarantee" to have an ownership interest in the "prescribed film production" in order for this exception to apply. This exception could apply in situations where a third party acquired a right to a "prescribed revenue guarantee".
However, a "prescribed revenue guarantee", as defined in section 7500 of the Regulations, means:
"a revenue guarantee in respect of a prescribed film production, which guarantee is certified by the Minister of Communications to be a guarantee under which the person who agrees to provide the revenue is a licensed broadcaster or bona fide film or tape distributor."
The definition of "prescribed revenue guarantee" in section 7500 of the Regulations refers to the same certification provided by the Minister of Communications under paragraph 1100(21)(b) of the Regulations. Clearly any revenue guarantee contemplated in section 1100(21) of the Regulations relates to the capitalized costs of production of a film and we understand that the Minister of Communications only certifies such revenue guarantees. Accordingly, in our view, paragraph 96(2.2)(d)(ii) which only applies to a "prescribed revenue guarantee" will not apply to a revenue guarantee relating to printing and advertising expenses.
We trust that the above comments will be of assistance.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1991
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© Sa Majesté la Reine du Chef du Canada, 1991
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