5 April 1995 Internal T.I. 9433657 - FILM RIGHTS

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.

		April 5, 1995

	Anne Marie Long	Headquarters
	Audit Division	Income Tax Rulings and
	Toronto Centre Tax Services   	  Interpretations 		Directorate
A. M. Brake
	Attention:  DOMONIC TIU	(613) 957-8953

		943365

XXXXXXXXXX

This is further to your referral of April 27, 1994, our reply of November 3, 1994, a meeting with the taxpayer's representatives and our discussions with Verification, Enforcement and Compliance Research Branch regarding program rights and the deferred program cost issues.

Our position on the treatment of program rights have not changed from that set out in our November 3, 1994 response. This position is not a new position as TOM 13(20)2.1 states that limited period licences for television exhibitions of film properties should be treated as class 14 property.

With regard to expenditures for equity investment or advances on account of equity investment, the question remains whether the payments constitute outlays to be deferred and expensed when the program is shown or the actual acquisition of a class 10, 12 or 14 asset or an interest therein.

Since the acquisitions were not made for the purpose of resale they would not be inventory. However, it would seem that certain types of those acquisitions could be treated as current or deferred expenses and, depending on the circumstances, others could be capital properties which would in fact be acquisitions of films that constitute depreciable property of a prescribed class. As long term capital assets, their value would, in most instances, only be nominal but, of course, this is a question of fact to be determined for each such film based on its fair market value. We also must recognize that such expenditures would not be made if it were not for the licence requirements to make such expenditures. However, given that the licence required that the expenditures be made as a requirement to operate and that in fact, in most instances, only nominal value can be attributed to a long term capital asset, the question arises as to the treatment of the remainder of the cost. Can some portion be attributed to the cost of class 14 rights and what happens to the remainder? To the extent that the expenditures in question cannot be attributed to the acquisition of a long term capital asset (a class 10 film) and there has been a proper allocation to class 14 rights, it would seem only equitable that the excess of the required expenditure, over the value that can be attributed to the acquisition of a film and/or rights, be treated as a current expense.

We apologize for the delay in making our reply.

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch