14 March 1996 External T.I. 9605365 - FILM 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.

Department of Canadian Heritage
Canadian Audio-Visual Certification Office
Journal Tower South 960536
15th Floor, 365 Laurier Avenue West Cal Brown
Ottawa, Ontario (613) 957-8980
K1A 0C8

Attention: Karyn R. Wichers

March 14, 1996

Dear Ms Wichers:

Re: Definition of Labour Expenditure

This is in reply to your letter of February 8, 1996 concerning, labour expenditure. In particular, you have asked that we clarify the meaning of the term "incurred" as used in the proposed legislation defining "labour expenditure" in subsection 125.4(1) of the Income Tax Act (the "Act"). This term is used in the phrase "...the salaries or wages directly attributable to production that are incurred after 1994...".

This term is meant to indicate that for tax purposes the expenditure is to be accounted for on what is usually referred to as the "accrual basis" which is also the normal method of determining income for accounting purposes. This is contrast to certain specific sections of the Act, for example medical expenses where the expenditure must be paid.

For an expense to be "incurred" it is sufficient that there be a legal obligation to pay that expense. This means that where an employee renders a service and as result of that service the employee has an enforceable claim for salary or wages from his employer, the employer has incurred the expense at that time.

In the sample agreement you provided, the time at which the services were to be rendered was detailed in the agreement and assuming that the services were rendered at that time, the employee would be entitled to the agreed compensation and the employer would incur the expense at that time. In the example, if all went as planned the employer's expense would be incurred in 1994. It would not matter that the actual payment was made to the employee in 1995; nor would the period during which the employee reported the salary or wage for tax purposes be relevant for determining when the expense was incurred.

We trust these comments will be of assistance.

Yours truly,

for Director
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch