29 March 2011 External T.I. 2010-0372421E5 - Ontario Production Services 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.

Principal Issues: Whether aircraft charter costs and other travel arrangement costs incurred to transport production crew are eligible expenditures for the Ontario Production Services Tax Credit (OPSTC).

Position: Question of fact.

Reasons: Qualifying production expenditures must meet the conditions outlined in subsection 92(5.3) as eligible service contract expenditures or in subsection 92(5.7) as eligible tangible property expenditures to qualify as an eligible expenditure for OPSTC purposes.

XXXXXXXXXX
									2010-037242
									K. Podor

March 29, 2011

Dear XXXXXXXXXX :

Re: Eligibility of costs for the Ontario Production Services Tax Credit

This is in response to your request for our opinion on the eligibility of certain costs for the Ontario Production Services Tax Credit (OPSTC) pursuant to section 92 of the Taxation Act, 2007 (TA). Specifically, you have asked whether the costs related to the chartering of an aircraft, associated ancillary costs and travel arrangement costs will qualify for the OPSTC. In addition, you requested our comments on the appropriate method of apportioning eligible costs based on use in Ontario.

In determining whether costs are eligible for the OPSTC, the definition of qualifying production expenditure provided for in subsection 92(5.1) of the TA must be considered. Qualifying production expenditures include both eligible tangible property expenditures and eligible service contract expenditures. Eligible tangible property expenditures include costs incurred for the acquisition or lease of tangible property used in the course of completing an eligible production. In order to qualify as an eligible service contract expenditure, costs must meet all of the conditions of subsection 92(5.3) of the TA. In general, expenditures are required to be directly attributable to an eligible production, be reasonable, related to services rendered in Ontario in the year or the previous year and for the stages of production from final script stage to the post-production stage.

Aircraft Charter, Ancillary Costs and Travel Arrangement Costs ("Transportation Costs")

It is our view that Transportation Costs are not eligible tangible property expenditures. Eligible tangible property expenditures require the acquired or leased tangible property to be used in completing the production; for example, a stage prop.

In our view, the Transportation Costs for transportation of cast and crew members represents the acquisition of transportation services. The Transportation Costs appear to meet the definition of eligible service contract expenditures. The Transportation costs are attributable to the work performed by cast and crew members in order to complete an eligible production. It is a question of fact whether the costs are reasonable under the circumstances and whether they are incurred during the stages of production, from final script stage to the post-production stage. Only those costs that are related to services rendered in Ontario and rendered by the service provider's Ontario based employees will be eligible.

Method of Apportionment

In general, the Rulings Directorate does not comment on the determination of an appropriate method of apportioning eligible costs. A number of possible methods may be used to apportion eligible costs. The method used to determine the portion of expenditures related to services rendered in Ontario should be reasonable in the circumstances and supportable. For example, costs charged-back for fees levied on an aircraft while situated at an Ontario-based airport will be eligible for OPSTC purposes. Subsection 307(1) of Regulation 183 of the Corporations Tax Act outlines the method and factors used to allocate taxable income for airline corporations with a permanent establishment in Ontario. A consistent approach would apportion costs based on distance flown by the aircraft within and outside of Ontario. Where an amount is paid to a service provider and the invoice does not provide a breakdown between Ontario based costs and non-Ontario based costs, the taxpayer is required to estimate the portion attributable to services rendered in Ontario, prior to including the amount in its OPSTC claim.

Conclusion

Only the portion of transportation costs related to services rendered in Ontario by the service provider's Ontario based employees will be eligible for the OPSTC. If services are provided by employees of an affiliated corporation of the service provider, the costs will not be eligible for the OPSTC.

The method used to apportion eligible expenditures related to services rendered in Ontario should be reasonable and supportable.

We trust these comments are helpful.

Steve Fron
Acting Manager
International and Trust Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch