28 March 1991 Internal T.I. 901999 F - Certified Short Production

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.

Subject: Certified Short Production

This is in reply to your memorandum dated August 16, l990 concerning the above-captioned subject.

Our understanding of the situation is as follows:

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Our comments are as follows:

A.        A film, for capital cost allowance purposes, basically consists of a bundle of rights.  That is, to be considered an owner of a film, a taxpayer must acquire sufficient interests of that bundle of rights that would permit the taxpayer to obtain real and effective control of the film.  The acquisition of such a bundle of rights would, in our opinion, consist of the ownership of an undivided right, title and interest in and to the master negatives, copyright (and any renewals or extensions thereof) in and to the film.  In addition, there must also be the exclusive and unrestricted right to exhibit the film in perpetuity throughout the world.

B.        The basic point is that an owner of a film must acquire all essential rights that are necessary to permit him (and his co-investors) to cause the film to be exploited and should not be subject to any territorial, media or time restrictions such that he would be excluded from the exploitation or distribution of the film.

C.        When a film can be readily exhibited in the theatre or on television, the rights to show the film in both media would reasonably be described as essential elements.  Were the interchangeability is not easy or likely, the less likely of the two rights would be considered as ancillary.  In such circumstances the distinction between essential and ancillary rights has to be re-evaluated based on the principles in the Bulletin that were developed with full-length feature films in mind.  Discussions with officers of the Canadian Film and Videotape Certification Office support the view that the chances a motion picture would be made from a TV series are remote because of the many differences in the manner in which a motion picture film and individual episodes of a TV series are made.  On this basis, the exploitation of a made-for-TV series in the theatre would be unlikely or of little value and the exclusion of theatrical rights from the essential rights to a made-for-TV series would be comparable to the exclusion of television series rights from the essential rights to a feature length motion picture.  Accordingly, it is our opinion that the exclusion of theatrical rights from the bundle of rights acquired by the taxpayer, in and by themselves, would not prevent acquisition of the Films by the taxpayer as a media restriction in the exploitation and distribution thereof.

D.

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E.        Our conclusion is that the taxpayer would have acquired a class 12 property provided that:

(i)       the other agreements described in D. above did not exclude the taxpayer from the exploitation of the Films in a particular media or territory in perpetuity.  Any such restrictions may deny control over the property by the taxpayer and, hence, deny ownership of the property for CCA purposes, or

(ii)     the rights transferred from the Producer to the parties to the other agreements did not represent a transfer of most or all of the exploitable value of the Films in the manner described in paragraphs 4 (last sentence) and 5 of the Bulletin.  In such a case, the Producer would be considered to have previously disposed of the Films to those parties rather than to the taxpayer.

     Whether the taxpayer was the owner of the Films would depend on all examination of the other agreements to determine whether or not the provisos in (i) and (ii) apply.  In the circumstances, we would suggest that you examine those other agreements before proceeding to allow the Films as a Class 12 property.  With regard to (i), it is our view that paragraph 6 of the Bulletin is not relevant in this case

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F.        Where the circumstances in E. (i) or (ii) apply to deny ownership of the Films to the taxpayer, it is our opinion that the taxpayer would have acquired a non-depreciable capital property as an investment, at a cost of             24(1)

We hope our comments will be of assistance to you.

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch