10 August 1990 Income Tax Severed Letter AC59695 - Sale of Rights in respect of a Textbook

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.

19(1)                            5-9695 (900030)
                                                  C.R. Bowen
                                                  (613) 957-2096

Dear Sirs:

We are writing in reply to your letter of February 28, 1990
wherein you requested our comments on income
                                  24(1)  We apologize for the
delay in replying to your letter.

Facts

Our understanding of the facts given to illustrate the issue is as follows:

                         24(1)

Your Questions

                      24(1)

Our Comments

While we are unable to provide confirmation of the income tax effects of the particular situation outlined in your letter as such determination is a question of fact that can only be made based on all of the facts in related to income received by an author from the sale of rights in respect of his text book.

1) As the definition of property in subsection 248(1) of the Act would include a copyright or other rights to a book (since they represent a bundle of rights that can be exploited by the owner), such rights owned by the author of a book wold represent property to that author. An amount received on the sale or assignment of those rights may be on account of capital (i.e. from the disposition of capital property) or income (i.e. from the disposition of other than capital property) based on the facts of the situation. In making this determination, jurisprudence in Canadian and British income tax law generally requires that an author treat any payment received from the sale or assignment of a copyright as being on account of income rather than capital, regardless of whether the payments are in the form of a lump sum or by way of royalties (e.g. Billam v. Griffith (1941) 23 TC 757 (KB), Glasson v. Rougier, (1941) 26 TC 86 (KB), Jean-Paul Ladouceur v. MNR, 68 DTC 771, (TAB)). In a situation where the rights represent capital property, it is a question of fact whether the sale price is based on the production or use of those rights. Where the sale price is based on such use of those rights, the determination of the amount of the proceeds that is considered to be on account of income vs. capital is outlined in Interpretation Bulletin IT-462 .

2) Where the copyright or other rights to a book have been sold by an author, it is our opinion that an amount paid to the author calculated as a percentage of the net profits earned by the purchaser from the use of those rights would generally be considered (as per paragraph 7 of IT-462 ) to be an amount that was dependent upon the use or production of the sale of the rights. Consequently, the amount received would be included in the income of the author under paragraph 12(1)(g) of the Act, unless such payments should be included in the author's income as income from a business or property under section 9 of the Act (see paragraph 3 of IT-462 ).

These comments represent our opinion of the law as it applies generally. As indicated in paragraph 24 of Information Circular 70-6R dated December 18, 1978, this opinion is not a ruling and accordingly, it is not binding on Revenue Canada, Taxation.

We trust these comments will be of assistance.

Yours truly,

for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch