CRA reverses its longstanding according of the copyright exemption to broadcasting (and perhaps other performance) royalties

2011-0404511C6 confirmed CRA’s longstanding position in IT-303SR, so that the exception in s. 212(1)(d)(vi) applied to all payments for copyright in respect of a literary, dramatic, musical or artistic work, unless that payment was for a right referred to in s. 212(5). This would indicate that payments made, for example, by a Canadian broadcaster to acquire the rights from a non-resident to broadcast live sport or artistic events in Canada (“broadcast rights payments”) would fall within s. 212(1)(d)(vi), unless the s. 212(5) exception applied.

However, 2012 ESA decision drew a clear distinction between the right to perform in public and the right to produce or reproduce a copyrighted work. Does this change the CRA view?

CRA noted that the ESA decision dealt with rights under s. 3(f) of the Copyright Act, namely, the according to the copyright holder of the sole right to, “in the case of any literary, dramatic, musical or artistic work, to communicate the work to the public by telecommunication.” There, the Supreme Court found that the enumerated rights in s. 3 essentially protect three basic rights: the right to perform, the right to produce, and the right to reproduce, a work; and found that the communication right under s. 3(f) came within the performance aspect of copyright, and not that of production or reproduction.

CRA indicated that, accordingly the ESA decision established that broadcasting relate to the performance of a work, not to its production or reproduction. The 2011 CRA position therefore ceased to be correct and, as a result, CRA was thereafter required to assess broadcast rights payments as being subject to tax under s. 212(1)(d).

This statement by its logic could very well apply to other performance royalty payments, such as royalties paid to the holder of the copyright to a Broadway theatrical production to mount the production in Canada. Using this as an example, it would be quite inappropriate to treat the longstanding CRA published policy as having been changed retroactively from 2012, given that the statutory reference to a royalty in respect of a copyright in respect of the production (or reproduction) of dramatic, musical or artistic work readily describes the theatrical production situation.

Similar language to that in s. 212(1)(d)(vi) also appears in various Treaties.

Neal Armstrong. Summary of 29 November 2022 CTF Roundtable, Q.13 under s. 212(1)(d)(vi).