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.
DECISION SUMMARY
Services, Public Utilities & Exempt Corporations Section
J.F. Oulton November 17, 1982
Reference: Paragraph 20(l)(a) of the Income Tax Act
Subsection 1104(2) of the Income Tax Regulations
Subject: "Ownership" of a film
Problem: Whether or not an investor in a certified feature production will "own" a class 12 depreciable property where the producer has entered into a licensing arrangement to distribute the film prior to the investor acquiring his interest. The particular fact in this arrangement that caused concern was that a well established distributor would have absolute control of the film with all aspects of the arrangement at its option for a period of 73 years and even then could retain control by having the right of first refusal in the event of any offer by a third party to acquire rights to distribute the film.
Position: XXXX The arrangement reflects commercial reality in that it is readily apparent that the investors could not participate in a film without the expertise of a well regarded distributor. The fact that the distributor, in this case, has largely retained control of the exploitation of the film is consistent with its 50% ownership and financial commitment, initial and promotion costs. The investors' real concern is that the property will be commercially exploited to their best advantage and in the event that the distributor co-owner fails to perform its obligation they will have the appropriate recourse. However, they can be reasonably assured of the distributor's best efforts in view of its initial cost outlay.
Comments:
Each similar arrangement must be looked at on a case by case basis with reference to paragraphs 2 to 5 of IT-441 . We will continue to be concerned whether or not real and effective control has been given up by a producer prior to the investor buying his Film Unit.
D.B. Morphy Chief Services, Public Utilities and Exempt Corporations Section Corporate Rulings Division
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