28 June 1982 Income Tax Severed Letter 9B-3619 F

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.

This is in reply to your round trip memo of May 31, 1982 addressed to Accounting and Collections Division regarding a payment by the above taxpayer to a XXX resident.

XXX

Our comments are as follows:

1. Subparagraph 212(1)(d)(i) of the Act is very broad in scope and would clearly appear to include a payment of the kind described in the above agreement. In this subparagraph the words "...including ... any payment (i) for the use of ...any property .... or any other thing whatever" are used. The scope of this subparagraph is discussed in M.N.R. v. Saint John Shipbuilding & Dry Dock Co. Ltd. (1989) DTC 6372 (F.C.A.) If some part of the payment to XXX would be specifically allocated to materials supposedly supplied by him, then payment for such supplies may fail outside the scope of this provision, but this would depend on all the circumstances. However, if such materials were copyrighted, the payment would not be exempt from the scope of subparagraph 212(1)(d)(i) of the Act.

2. We have considered whether the payment is exempt from Part XIII withholding tax by virtue of subparagraph 212(1)(d)(vi) of the Act. There are two aspects of this subparagraph to be resolved.

the first aspect is whether the organization test training materials would qualify as "literary, dramatic, musical or artistic work'. 'Literary' is the relevant word for this purpose. According to Fox in his second Edition of "The Canadian Law of Copyright and Industrial Designs' the meaning of 'literary' is very broad. On page 99 he states "Literary quality or merit ... is not a necessary ingredient" and not a minimum of skill and character is necessary to obtain a copyright. On page 104, he goes on to state that a literary work may find expression in a book, pamphlet or other writing. In this connection, the federal Copyright Act in section 2 provides that a book "includes every volume, part or division of a volume, pamphlet, sheet of letterpress, sheet of music, map chart or plan separately published". It would appear very likely that the materials in question would fall within this very broad meaning of literary or artistic work.

The second aspect of note in subpargraph 212(1)(d)(vi) is that the payment must be "in respect of the production or reproduction" of any literary or other artistic work. Based on the information contained in your memo and the contract it is unclear whether XXX has in fact produced or reproduced any copyrighted material belonging to Mr. XXX this will have to be established as a matter of fact. If Mr. XXX supplied the organization skill test kits and XXX was merely involved in there sale of the kits, then this would probably not constitute a production or reproduction of the copyrighted material in question. We have taken the view, in one case, that where a royalty was paid for the use of record, it was not a payment for the production or reproduction of musical work. In another case, where a pamphlet, which had been developed by a U. S. parent and made available to a Canadian subsidiary was copied and distributed to the public by the Canadian subsidiary, the payments were considered to have been for the reproduction of a literary work.

There is one further issue to be considered with respect to any copyright fee paid by a taxpayer, especially where the payor and the payee are not dealing at arm's length, as appears to be the case with XXX and XXX.

The agreement between XXX and XXX provides that the payment will be of total sales. While in absolute terms this appears to be excessive, a final determination will have to be made on the basis of all the relevant facts.

We trust that these comments may be of some assistance. If we can be of further assistance to you in this regard please advise.