ET/SL 29A

March 25, 1996

Q1. WHEN WAS THE EXCISE TAX ACT AMENDED TO COVER SPLIT RUN MAGAZINES?

A1. On December 15, 1995, the Excise Tax Act was amended to impose an excise tax on magazine split run editions.

Q2. HOW IS THE EXCISE TAX ON SPLIT-RUN MAGAZINES BEING APPLIED?

A2. The excise tax is levied on split-run editions, on a per-issue basis, at a rate of 80% of the total value of all advertisements appearing in the split-run edition of the periodical.

Q3. WHAT CRITERIA IS USED TO DETERMINE IF A MAGAZINE EDITION IS CLASSIFIED AS "SPLIT-RUN"?

A3. A split-run edition of a magazine is an edition:

• that is distributed in Canada;
  
• in which more than 20% of the editorial material is the same or substantially the same as editorial material that appears in one or more periodical editions that are distributed primarily outside Canada; and
  
• that contains one or more advertisements that do not appear in identical form in those other periodical editions.

Q4. DOES THE TAX APPLY TO FOREIGN MAGAZINES THAT CONTAIN IDENTICAL ADVERTISING IN THEIR EDITIONS DISTRIBUTED BOTH INSIDE AND OUTSIDE OF CANADA ?

A4. No. The tax only applies when at least one advertisement in the magazine's Canadian edition does not appear in identical form in its foreign edition(s).

Q5. WHO IS REQUIRED TO PAY THE TAX?

A5. The tax is payable by the "responsible person" for the split-run edition. Depending on the circumstances, the responsible person is either the publisher, a person connected with (that is to say related to) the publisher, the distributor, the printer or the wholesaler. The responsible person is the person highest on this list who is resident in Canada.

Persons connected with the responsible person are jointly and individually liable for payment of the tax. Moreover, such joint liability is imposed where there is more than one distributor, printer or wholesaler responsible for the payment of the tax.

Q6 ARE THERE ANY EXEMPTIONS TO THIS EXCISE TAX?

A6 Magazines that are otherwise subject to the tax will have the same number of split run-editions per year exempted from the tax that it published in Canada during the 12-month period ending March 26, 1993.

For example, a periodical that now has a distribution of 12 split-run editions per year but had only nine such editions in the 12 months prior to March 26, 1993, is liable for the excise tax on three of its current split-run editions.

Also, the March, 1996 federal Budget contained a proposal to make the first split-run edition of a magazine tax exempt if the person who would be responsible for paying the tax is the distributor, printer, or wholesaler.

Q7. WHY HAS REVENUE CANADA ESTABLISHED SEVERAL POSSIBLE POINTS OF TAX LIABILITY WITH REGARD TO THE TAX ON SPLIT-RUN MAGAZINES?

A7. A broad approach is taken to make the tax effective and collectable, given the possibility that some participants in the publication-distribution chain may not be resident in Canada. The tax legislation will be enforced only within Canadian borders.

Q8. HOW DOES REVENUE CANADA DETERMINE WHICH PERIODICALS ARE SUBJECT TO THIS TAX?

A8. It is not feasible for Revenue Canada to review all periodicals appearing in Canada on an ongoing basis to determine whether a split-run edition exists or not. The Department will rely, as it does for other taxes, on the self-assessment of taxpayers, as well as referrals from other affected parties. We are also working with Heritage Canada to identify potential tax liability situations.

Q9. THE AMERICAN GOVERNMENT HAS FORMALLY CHALLENGED THIS LEGISLATION BEFORE THE WORLD TRADE ORGANIZATION. HOW WILL THIS DISPUTE AFFECT APPLICATION OF THE TAX?

A9. Pending any change in the law, Revenue Canada will continue to apply current legislation under the Excise Tax Act covering split-run magazines.