Canada v. Larsen, 99 DTC 5757 (FCA)
The taxpayer and his three siblings gave a lumber company the right to enter their land to remove timber during a five-month period for consideration of $70 per cubic metre of timber removed. Noël J.A. found (at p. 5760) that "the right to remove timber by severance is, at the time of the grant, an incorporeal hereditament in land which as such constitutes real property" and indicated that there is no requirement in the definition of qualified real property that the standing timber would be used at the time of grant in farming.
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|Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(g)||77|
20 October 2000 External T.I. 2000-004172 -
Discussion as to whether a corporation would qualify where it has Class A voting non-participating shares owned by a Canadian citizen, and Class B participating shares held by two corporations, two of which are non-Canadian, with the Class B shares having a call option to purchase all the Class A shares.
The granting of the option to acquire the production by the production company (Prodco), a qualified corporation which will claim the Canadian film or video production tax credit under s. 125.4, to a related distribution corporation and prescribed taxable Canadian corporation (Master Distributor), and with no assignment of the copyright occurring until the option was exercised, would not cause the 25-year copyright ownership requirement not to be met as s. 1106(1)(a)(iii)(A) of the definition of "excluded production" contemplates a transfer of the copyright between a qualified corporation and a related prescribed taxable Canadian corporation.
A sole-purpose production company (Prodco) grants to to Master Distributor the exclusive right to exhibit, distribute and license the exhibition and distribution of the Production, and also grants an Option to acquire all of Prodco's right, title and interest in the Production except for the right of Prodco to retain the proceeds of (i) any Tax Credits, (ii) any royalties received or receivable by Prodco under the Canadian Pre-Sale, and (iii) XX. The Exercise Price of the Option will be equal to the FMV of the Property at the date of exercise of the Option.
- The granting of the Option will not result in the Production becoming an excluded production under clause 1106(1)(a)(iii)(A) of the "excluded production" definition.
- The exercise of the Option by Master Distributor will not result in the Production becoming an excluded production under such clause.
- Immediately after the exercise of the Option by Master Distributor, the Production that is thereby acquired by Master Distributor from Prodco will be a Class 10(x) property to Master Distributor provided that it was a Class 10(x) property to Prodco.
Three production companies, Prodco 1, Prodco 2 and Prodco 3 produced productions each qualifying as a Canadian film or video production ("CFVP") and claimed the Canadian film or video production tax credit ("CFVPTC"). Prodco 1 was wound-up under s. 88(1) into its parent (Parentco) and Prodco 2 and Prodco 3 were amalgamated under s. 87(1) with Subco, a corporation controlled by Parentco, so that Parentco or Amalco acquired the worldwide copyright to the productions. Subsequently, there was an acquisition of control of Parentco by a person unrelated to the previous controlling shareholder. Thereafter, Parentco and Amalco transferred to Newco, before the end of the 25-year period referenced in the "excluded production" definition in Reg. 1106(1), the worldwide copyright to the above productions. However, the majority of the shares of Newco, which were initially controlled by Parentco, were subsequently sold to a corporation controlled by a person unrelated to the initially controlling person.
In order for the productions to retain their qualification as a CFVP, must Newco be related to the production companies at the time of the claim for the CFVPTC or at the time of the disposition of the worldwide copyright? After noting that pursuant to ss. 87(2)(j.94) and 88(1)(e.2), Parentco and Amalco were a continuation of the respective Prodcos, CRA stated:
[As following the sale of the majority of the shares of its capital stock to a corporation controlled by XXXXXXXXXX, Newco no longer qualifies as a taxable Canadian corporation related to one of the qualified corporations (the particular corporations for the purposes of the definition of "excluded production"), the productions will become excluded productions since neither the qualified corporation nor a related taxable Canadian corporation would be the exclusive owner of the worldwide copyright for those productions for the minimum period of 25 years after their completion.
Indeed, the corporation resulting from the amalgamation and Parentco, within the 25-year period referred to in the definition of "excluded production", respectively disposed of their copyright in each production to Newco, while Newco, upon the sale of the shares of its capital stock, would not be by virtue of section 251 a corporation related to both the corporation resulting from the amalgamation and to Parentco.
Regarding the meaning of "news programming," CRA stated:
[A] production dealing with a current events topic is not necessarily a news program and … a production dealing with a current events topic could, in certain circumstances, qualify for the CFVP tax credit … .
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|Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense||expenditure on Canadian film production can be current expense if it is only of short-term use||235|
The appellant (“GFP”) requested a preliminary opinion from the Canadian Audio-Visual Certification Office (CAVCO) as to the eligibility for the Canadian film or video production tax credit (CPTC) of a proposed production that would be in the form of a quiz contest but where the points would not matter and the focus would be on the participants being funny (the “Production”). CAVCO responded quickly that the synopsis provided to it indicated that the Production did not seem to be ineligible, but reserved a final decision based on its review of the final version of one or several episodes of the series. GFP produced 10 episodes of the first season, but then was informed, two years after the preliminary ruling, that CAVCO’s opinion, after having viewed episodes, was to deny the CPTC on the basis that the Production had the features of a “game, questionnaire or contest” and was, therefore, excluded under Reg. 1106(1) – excluded production - s. (b)(iii). After making submissions, GFP ultimately received notices of denial.
Pentney J dismissed the application for judicial review, stating (at paras 70, 72, 74):
… [I]t is clear that the opinion provides only a preliminary indication, based solely on the information provided by the producer, and that the final decision is based on an assessment of the actual production itself. …
There is nothing in the evidence to suggest that the decision was not made in good faith, that it constituted an abuse of power or that it otherwise violates the objectives of the legislation. As indicated in Zone 3, the “architecture” of the statutory scheme requires the Minister to determine whether a production is excluded; this is exactly what was done. …
… I accept that in view of the architecture of the system, to use the expression of Justice de Montigny in Zone 3 at paragraph 31, those who want a certificate must spend money to embark on a production, with no guarantee that they will receive the benefit of a tax credit. …
The Department of Canadian Heritage through the Canadian Audio-Visual Certification Office (“CAVCO”) gave the taxpayer (a leading Quebec television producer) advance notice (later confirmed by the Minister of Heritage) of denial of the taxpayer’s application for certification of a TV series on the expressed basis that it considered the production to be a game show, stating that “each episode follows a game show format with a historical emphasis” and “the host…introduces the contestants, who compete against each other by answering a series of question the topic(s) chosen for the episode.” The taxpayer did not learn until later that CAVCO had applied a “Decision Tree,” which required rejection of the application on the basis that the answers were objective rather than subjective and the “contestants” changed from show to show.
In finding that this adverse decision was not unreasonable and, therefore, not subject to judicial control, Montigny JA stated (at para. 33, TaxInterpretations translation):
Even accepting that the game-quiz was a pretext for presenting informational content (rather than the reverse, as the synopsis would suggest), it does not necessarily follow that the decision of the Minister, to exclude the Production in applying subparagraph 1106(1)(b)(iii), is erroneous. The exclusion of a game, questionnaire or contest is sufficiently broad to encompass the Production in this case, irrespective of the relative importance to be accorded to the quiz-questionnaire aspect compared to that of its historic and informative content.
Respecting the alleged procedural unfairness in the use of the Decision Tree, he stated (at paras. 48-49):
[T]he object of this document is to foster coherence in the treatment of files by diverse CAVCO analysts…respecting productions which prima facie entail a game, questionnaire or contest… . A summary examination of the “Decision Tree” confirms that its application normally has the effect of favouring the producers as it limits the scope of the exclusion under the Regulation. …
[T]he treatment accorded to other productions does not create legitimate expectations for the respondent.
The Department of Canadian Heritage through the Canadian Audio-Visual Certification Office (“CAVCO”) gave the taxpayer (a leading Quebec television producer) advance notice (later confirmed by the Minister of Heritage) of denial of the taxpayer’s application for certification of a TV series on the expressed basis that it considered the production to be a game show, stating that “each episode follows a game show format with a historical emphasis” and “the host…introduces the contestants, who compete against each other by answering a series of questions on the topic(s) chosen for the episode.” The taxpayer did not learn until later that CAVCO had applied a “Decision Tree,” which required rejection of the application on the basis that the answers were objective rather than subjective and the “contestants” changed from show to show.
Before referring the matter back to the Minister for redetermination within 90 days and with taxpayer submissions on the “Decision Tree” and the production’s eligibility, Martineau J stated (at paras. 57-58, 62, 70):
[T]he reasons do not include a serious analysis of the true nature or the main feature of the Production based on the substantial physical and documentary evidence the applicant submitted to CAVCO.
Indeed, the reasons… do not directly dispute the fact that…the series…is a general entertainment program with high informational and/or educational content and that the question-and-answer format used merely serves as a pretext or vehicle for effectively presenting the information content.
As reiterated… in Turner…2012 FCA 159 at para …[w]hen the reviewing court is not in a position to determine if the decision on that point or argument falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and the law, the decision will usually be found to be unreasonable, unless the reviewing court can itself reasonably find that the outcome of the proceedings would not have changed even if the point or argument has been dealt with by the tribunal one way or the other.
[[T]he applicant had a legitimate expectation that the advance notice of denial list the exact criteria used by CAVCO to allow it to make timely, relevant representations… .
20 July 1998 T.I. 981251
The "term" 'treaty co-production twinning arrangement' means the pairing of two distinct film or video productions, one of which is a Canadian film or video production and the other which is a foreign film or video production".