6 June 1996 External T.I. 9618065 - CANDIAN FILM TAX CREDIT

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

	           	      				961806
XXXXXXXXXX				                   Cal Brown
(613) 957-8980

Attention: XXXXXXXXXX

June 6, 1996

Dear Sirs:

Re: Canadian Film or Video Production Tax Credit

This is in reply to your letter of May 15, 1996, concerning an arrangement in which private investors will fund certain costs related to a Canadian certified film production.

Since this referral involves a specific taxpayer, we are not prepared to provide any comments with respect to the specific arrangements set out in your letter. The facts and proposal of a specific case could only be considered in the form of a request for an advance income tax ruling or in the event the transactions are completed, through discussions with officials of the local tax services office.

However, we are providing the following general comments which may be of assistance.

Subsection 125.4(4) as proposed in Bill C-36 which received first reading May 17, 1996, reads as follows:

(4) This section does not apply to a Canadian film or video production where an investor, or partnership in which an investor has an interest, directly or indirectly, may deduct an amount in respect of the production in computing its income for any taxation year.

There is no indication that the "amount" which may be deducted has to relate to capital cost. Consequently, any deduction related to an "investment" in any taxation year is sufficient to deny the tax credit. We also note that the issue is not decided by whether a deduction is actually made but by the "entitlement" to a deduction.

In dealing with actual cases Revenue Canada will need to establish that there are no possible deductions as a result of the investment in the film before a ruling could be provided.

We are also of the view that an arrangement in which funds are provided by an investor and can only be recouped through "film related revenue" may be assistance. A final determination could only be made by a review of all the facts and circumstances.

Yours truly,

for Director
Resources, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch