28 September 1998 External T.I. 9819755 - CANADIAN FILM OR PRODUCTION TAX CREDIT

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.

Principal Issues:

1. Will distributors be viewed as having acquired copyright ownership in a film?

2. Will the acquisition of shares in a producer disqualify the producer from the credit?

PositionS:

1 &2. Not in a normal commercial arrangement. Question of fact, based on documents and agreements. We are still developing guidelines for less than obvious situations.

Reasons:

Guidelines provided in paragraph 4 of IT-441 and in our draft investor rule guidelines issued June 17, 1998.
		981975
XXXXXXXXXX 	Allan Nelson
(613) 957-9768
Attention:	XXXXXXXXXX 

September 28, 1998

Dear Sir:

Re: Canadian Film or Video Production Tax Credit - Investor Rules

Thank you for your letter dated July 17, 1998, wherein you expressed concerns about our Directorate’s June 17, 1998, draft interpretive position on the meaning of the term “investor”, as it relates to the Canadian film or video production tax credit.

It is our understanding that two of your main concerns are (i) the issue of when a distributor’s interest in a particular production would be viewed as an equity/ownership interest in the production, and the consequential impact on the amount of the producer’s Canadian film or video production tax credit, and (ii) whether the acquisition of shares in a production company would disqualify the producer from claiming the film credit.

Generally, it is our view that in normal commercial distribution arrangements the contracts and agreements between the parties do not indicate that there has been a disposition of a portion of the copyright in the production to the distributor. In those circumstances, there would be no impact on the producer’s eligibility to claim the Canadian film or video production tax credit. However, in determining whether there has been a disposition of copyright or a portion thereof, we will use the principles referred to in paragraph 4 of Interpretation Bulletin IT- 441.

It is also our view that the fact that a person invests in shares of a Canadian producer will not normally result in a reduction/elimination of the amount of the credit that the producer is otherwise eligible to claim. As always, we hold the prerogative to consider the appropriateness of the application of GAAR in less than usual business arrangements. We envisage this only happening in exceptional circumstances.

We hope to issue a revised and clarified draft of our June 17 interpretive guidelines, early in the new year, after considering the feedback received from representatives of the film industry, such as yourself, and after consulting with officials at both CAVCO and the Department of Finance, with regards to cultural and tax policy.

After issuing the revised draft guidelines, we would be pleased to consider any additional feedback you may have.

Yours truly,
Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch