Subsection 125.4(1) - Definitions
Assistance
Administrative Policy
5 February 1998 External T.I. 9729535 - ASSISTANCE
Discussion of circumstances in which loans to finance a production would be considered to be forgivable loans.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x) | loan repayable out of revenues | 65 |
Paragraph (a)
Administrative Policy
16 May 2005 Internal T.I. 2005-0119061I7 F - Montant d'aide-actions
Prod Co, a wholly owned subsidiary of M Co and a "qualified corporation," produces a Canadian film or video production ("CFVP") at a cost of $1,900,000 that is eligible for the s. 125.4(3) credit. M Co funded Prod Co through a loan, which will only be repaid if the production generates revenue, and is not expected to be repaid.
After noting that the loan was assistance for the purposes of s. 12(1)(x) and the definition thereof in s. 125.4(1), and reduced Prod Co's "labour expenditure" as defined in s. 125.4(3) (and after also finding that the funding would not have been “assistance” under s. 125.4(1) if made in the form of a share subscription), the Directorate considered whether there would be such assistance if M Co converted its loan into shares at the end of the production, and stated:
Subject to the possible application of paragraph 80(2)(g.1), there will be a debt settlement if the FMV of the shares is less than the amount of the loan. We are of the view, however, that this debt settlement would not constitute an amount of assistance for the purposes of section 125.4.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x) - Subpargraph 12(1)(x)(viii) | funding of film production company by shares rather than loan would not give rise to assistance | 181 |
| Tax Topics - Income Tax Act - Section 80 - Subsection 80(1) - Excluded Obligation - Paragraph (a) | conversion of loan that was taxable assistance under s. 12(1)(x) into shares with lower FMV would not give rise to forgiven amount | 304 |
| Tax Topics - Income Tax Regulations - Regulation 1106 - Subsection 1106(1) - Excluded Production - Paragraph (a) - Subparagraph (a)(iii) | transfer of all the revenues to a film implies a transfer of its copyright | 191 |
| Tax Topics - General Concepts - Ownership | transfer of the economic benefit of copyright entails transfer of its ownership | 149 |
| Tax Topics - Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(c) | subscription for shares of sub at overvalue constitutes a contribution of capital, generating a s. 53(1)(c) basis bump | 80 |
Labour Expenditure
Paragraph (b)
Subparagraph (b)(iii)
Administrative Policy
9 July 2024 Internal T.I. 2023-0976691I7 - Film Tax Credit and Alter Ego Trust
The Taxpayer paid $300,000 to a corporation for the executive producer servicers of an individual employed by the corporation. Such amount would have qualified for the B.C. production services tax credit but for a requirement that the shares of the corporation “belong” to a BC-based individual, whereas the shares were held by the individual in his capacity of trustee of an alter ego trust which had been settled by him (to avoid B.C. probate duties) and of which he was the life beneficiary. The Directorate noted that the relevant BC ITA provisions were modeled on ITA s. 125.4(1) – labour expenditure – (b)(iii) and s. 125.5(1) – Canadian labour expenditure - (b)(iii).
In finding that this shareholding satisfied the above “belong to” test, rather than the shares belonging to the trust under the position of the TSO, the Directorate stated:
[T]he shares … belong to [the individual] and not the Trust for purposes of the tax credit. As a matter of law, a trust does not have an independent legal existence and is a legal relationship. Property to which a trust relationship applies is held by the trustee(s) of a trust in order to fulfil their obligations as trustees. The facts further support this position as [the individual] has legal ownership of the shares in [the individual’s] role as trustee, and beneficial ownership of the shares as the sole beneficiary who is entitled to the income on the shares while [the individual] is alive, and no other person may receive or obtain the use of the shares while [the individual] is alive.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Ownership | the property of an alter ego trust “belonged” to its sole trustee and life beneficiary rather than to the trust | 232 |
Qualified Corporation
See Also
Global Video Inc. v. The Queen, 2008 DTC 2621, 2005 TCC 742 (Informal Procedure)
An assessment of the Minister to deny the taxpayer credits on the basis that only about 25% of its total production costs were costs of eligible productions, was confirmed. In reaching this conclusion, Lamarre Proulx, J. stated (para. 28):
"The term used in the French version is 'principalement', and the Petit Robert dictionary defines the adjective 'principal' as that which is the most important, the first among several."
Administrative Policy
2012 Ruling 2011-0426581R3 - Loss and XXXXXXXXXX tax consolidation
Creditco is an indirect subsidiary of Parentco, which is a Canadian corporation. Creditco carries on business in one province, has non-capital losses and unutilized credits and is a qualified corporation (presumably as defined in s. 125.4(1).)
Creditco receives a loan from Parentco (funded by Parentco out of a daylight loan) and on-lends the proceeds in demand loans bearing interest at a market rate to various direct and indirect subsidiaries of Parentco (Aco through to Nco), who use the lent proceeds to subscribe for preferred shares of Creditco bearing a cumulative dividend equal to the interest rate on the demand loans plus a spread. These demand loans do not exceed the respective borrowing capacities of the borrowing subsidiaries. Creditco uses such share subscription proceeds to pay off the loan from Parentco. The arrangement will be unwound in X years.
Interest deduction ruling given re Aco to Nco; and ruling that these transactions will not cause Creditco to cease to be a qualified corporation.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a) | loss shift does not detract from principal business | 189 |
Subsection 125.4(3) - Tax credit
Articles
Bacal, Jadd, Thivierge, "Raised the Curtain for Act II: Tax Shelter Reform and the New Film Tax Credit Regime", 1995 Canadian Tax Journal, Vol. 43, No. 6, p. 1965.
Subsection 125.4(4) - Exception
Administrative Policy
9 July 1998 External T.I. 9817185 - TVC INSURANCE AND INVESTOR RULES
In a situation where a loan is made to finance a Canadian film production, although the lender will be an investor it would be viewed as being able to deduct an amount in respect of the loan rather than in respect of the production, so that s. 125.4(4) would not apply unless the producer also transferred an equity interest in the production to the lender. The lender would be considered to have an equity interest if it was entitled to participation payments computed as a percentage of profits from the production with no cap, and there was clearly no connection between the estimated participation payments and the fair market value interest rate. Where time variable contingent insurance was provided by an arm's length non-resident insurer, the insurer would not be an investor for purposes of s. 125.4(4) because it would not be subject to tax in Canada
28 September 1998 External T.I. 9819755 - CANADIAN FILM OR PRODUCTION TAX CREDIT
An investment in shares of a Canadian producer will not normally cause a reduction in the amount of the credit available to the producer.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition | 27 |