19 April 1994 External T.I. 9406645 - GRANDFATHERING CERTIFIED 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

			940664
XXXXXXXXXX		Cal Brown

Attention: XXXXXXXXXX

April 19, 1994

Dear Sirs:

Re: Grandfathering "XXXXXXXXXX" Certified Production

This is in reply to your letter of March 2, 1994 concerning a feature film to be produced as a certified production entitled XXXXXXXXXX.

You have requested our opinion on whether this film, when and if acquired as a certified production, would be eligible for a rate of 100% capital cost allowance. The film would be eligible for this rate of capital cost allowance if it could be "grandfathered" under the coming into force rules that were provided by the Department of Finance when paragraph (w) of Class 10 was added to Schedule II of the Income Tax Regulations in 1988. Paragraph (w) provided that certified productions acquired after 1987 would be included in Class 10 and therefore only be eligible for a capital cost allowance rate of 30%.

The coming into force rules recognized that the parties involved in a film project, in process at the time the change in law was announced, may have a significant financial commitment based on the former law. In such a case, specific rules were introduced to allow certain projects in process to proceed on the basis that they would be entitled to the former rate of capital cost allowance (100%).

There are two specific "grandfathering" provisions that are relevant to XXXXXXXXXX If either of these provisions is met the project would be eligible for the higher rate of capital cost allowance. The first may be summarized as follows:

1. XXXXXXXXXX would have to be acquired after 1988 pursuant to an agreement in writing entered into before June 18, 1987.

The second provision may be summarized as follows:

2. There must be a prospectus, preliminary prospectus, registration statement or offering memorandum in existence before June 18, 1987 and actually filed with a public authority if required.

It is our opinion that the agreement referred to in 1 above must be a binding written agreement setting out significant terms of the arrangement such as the purchase price, ownership and distribution rights. We carefully reviewed the documents provided with your submission and in our view no such agreement exists.

The documents required under the provisions mentioned in 2 above require that formal written documents be produced setting out all significant matters involved in the financing and clearly detailing the amount and terms of the offering. It is our view that none of the documents included with your submission would meet these requirements.

While the documents included with your submission indicate

XXXXXXXXXX

We trust these comments will be of assistance.

for Director
Manufacturing Industries,
Partnerships and Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch