2001 Ruling 2001-0066693 - production services 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.

Principal Issues:

This ruling involves a proposed public production services film deal similar to one previously issued for the same group (file #2000-002518, dated XXXXXXXXXX , 2000).

No new issues.

Position:

Rulings similar to those given in the prior ruling.

Reasons:

In accordance with the law and draft Regulations.

XXXXXXXXXX 2001-006669

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
Advance Income Tax Ruling Request

This is in reply to your letter dated XXXXXXXXXX, and our numerous telephone conversations (XXXXXXXXXX) wherein you requested advance income tax rulings on behalf of the proposed XXXXXXXXXX production services transactions, as described herein. We also acknowledge receipt of drafts of various documents referred to in this letter.

In this letter the following definitions are used:

"XXXXXXXXXX Agreement" means the agreement to be entered into between the Production Services Partnership and Studio, as described in Paragraph 15;

"XXXXXXXXXX Fee" means the fee to be paid by the Production Partnership to Studio pursuant to the XXXXXXXXXX Agreement;

"ACo" means XXXXXXXXXX, as described in Paragraph 3;

"Act" means the Income Tax Act (Canada) R.S.C. 1985 (5th Supp) C. 1, as amended to the date hereof;

"XXXXXXXXXX Fee" means the fee that will be paid by the Production Services Partnership to the Production Co. pursuant to the XXXXXXXXXX Agreement;

XXXXXXXXXX;

"BCo" means XXXXXXXXXX as described in Paragraph 3;

"BCo Sales Agency Agreement" means the sales agency agreement to be executed between BCo and the Offering Partnership, as described in Paragraph 31;

"BCo Sales Commission" means the sales agency commission payable by the Offering Partnership to BCo pursuant to the BCo Sales Agency Agreement;

"CCo" means XXXXXXXXXX, as described in Paragraph 1;

"Class A Units" means Class A units of the Production Services Partnership;

"Class B Units" means Class B units of the Production Services Partnership;

"Class B Unit Option" means the option to acquire Class B Units that will be granted by the Production Services Partnership, as described in Paragraph 33;

"CLE" means those salary, wage and remuneration expenses that will be incurred by the Production Co. in respect of the production of the Programs which will qualify for the Tax Credits;

"CLE Fee" means the fee to be paid by Studio to the Production Co. for providing or arranging for the provision of the CLE production services, as described in Paragraph 10;

"XXXXXXXXXX" means the interim production loan that will be procured by Producer and granted by the XXXXXXXXXX Lender to XXXXXXXXXX, as described in Paragraph 23;

"CLE Interim Production Loan Agreement" means the interim production loan agreement to be executed between the CLE Lender and Production Co., as described in Paragraph 23;

"CLE Lender" means the entity, which may be Studio or an affiliate of Studio, which will make the CLE Loan;

"CLE Production Services Agreement" means the production services agreement to be executed between Studio and the Production Co., as described in Paragraph 10;

"Closing" or "Closings" means the date or dates on which subscriptions for Class A Units of the Offering Partnership are accepted;

"XXXXXXXXXX Agreement" means the XXXXXXXXXX agreement to be made among the Production Services Partnership and the Production Co., as described in Paragraph 14;

"DCo" means XXXXXXXXXX, as described in Paragraph 3;

"ECo" means XXXXXXXXXX, as described in Paragraph 3;

"Exercise Period" means the period from the date the Class B Unit Option is granted until XXXXXXXXXX;

"XXXXXXXXXX Fee" means the fee to be paid by the Production Services Partnership to the PSGP XXXXXXXXXX, as described in Paragraph XXXXXXXXXX;

"General Partner" means XXXXXXXXXX, the general partner of the Offering Partnership, as described in Paragraph 1;

"Initial Limited Partner" means XXXXXXXXXX, the initial limited partner of the Offering Partnership, as described in Paragraph 1;

"XXXXXXXXXX Agreement" means the agreement to be made between the Production Services Partnership and Producer, as described in Paragraph 16;

"XXXXXXXXXX Fee" means the fee to be paid by the Production Services Partnership to the Producer for providing services pursuant to the XXXXXXXXXX Agreement;

"Interim Production Loan" means the interim production loan that will be granted by XXXXXXXXXX to the Production Services Partnership to finance the NCLE, as described in Paragraph 22;

"Interim Production Loan Agreement" means the interim production loan agreement to be executed between PSGP and the Production Services Partnership, as described in Paragraph 22;

"Investor" or "Investors" means a person or persons who will acquire one or more Units in the Offering Partnership during the XXXXXXXXXX year;

"Issue Fee" means the fee to be paid by the Offering Partnership to ACo pursuant to the Offering Partnership Issue Agreement described in Paragraph 31;

XXXXXXXXXX;

"Loan Arrangement Fee" means a fee to be paid by each Investor who obtains a Unit Loan to the Unit Lender in consideration for the Unit Lender making the Unit Loan;

"NCLE" means those production expenses (as described in Paragraph 12) that will be incurred by the Production Services Partnership, or on behalf of the Production Services Partnership, pursuant to the NCLE Production Services Agreement in respect of the production of the Programs. NCLE will not qualify for the Tax Credits;

"NCLE Production Services Agreement" means the production services agreement to be executed between the Producer and the Production Services Partnership, as described in Paragraph 12;

XXXXXXXXXX;

"Offering Partnership" means XXXXXXXXXX, as described in Paragraph 1;

"Offering Partnership Agreement" means the limited partnership agreement governing the affairs of the Offering Partnership made among the General Partner, the Initial Limited Partner and each of the persons who becomes a limited partner of the Offering Partnership from time to time;

"Offering Partnership Issue Agreement" means the agreement made between the Offering Partnership and Aco, as described in Paragraph 31;

"OP Fee" means the fee payable by the Offering Partnership to the General Partner pursuant to the Offering Partnership Agreement for certain consultation, operation and management services as are necessary to complete the offering of Units and conduct the ongoing business operations of the Offering Partnership, as described in Paragraph 31;

XXXXXXXXXX;

"Paragraph" refers to a numbered paragraph in this letter;

"Producer" means XXXXXXXXXX, as described in Paragraph 6;

"Producer/PSGP Loan" means the loan made by the Producer to the PSGP, as described in Paragraph 21;

"Producer Services Agreement" means the production services agreement to be executed between Studio and the Producer, as described in Paragraph 11;

"Production Budget" means the aggregate cost of producing the Programs;

"Production Co." means XXXXXXXXXX as described in Paragraph 5;

"Production Services Partnership" means XXXXXXXXXX, as described in Paragraph 2;

"Production Services Partnership Agreement" means the limited partnership agreement governing the affairs of the Production Services Partnership made among PSGP, an initial limited partner, each Class A Unitholder and each Class B Unitholder of the Production Services Partnership, from time to time;

"Programs" means XXXXXXXXXX all intended to be produced in whole or in part in Canada;

"Proposed Transactions" means the proposed transactions described in Paragraphs 9 through 37;

"PSGP" means XXXXXXXXXX, the general partner of the Production Services Partnership described in Paragraph 2;

"PSP Fee" means the fee payable by the Production Services Partnership to PSGP under the Production Services Partnership Agreement for the management and administrative services provided by the PSGP, as described in Paragraph 2;

"Regulations" means the regulations to the Act;

"Release Date" means the date (to be negotiated) by which Studio, or its appointed distributor, is to release or distribute the Programs for commercial exploitation;

"Short-term Loan" means the loan to be made by the PSGP to the Production Services Partnership, as described in Paragraph 22(b);

"Studio" means XXXXXXXXXX as described in Paragraph 4;

"Studio/Producer Loan" means the loan made by Studio to the Producer, as described in Paragraph 21;

"Subscription Agreement" means each subscription agreement pursuant to which an Investor will acquire Units of the Offering Partnership;

"Tax Credits" means the film and video production services tax credits that are available pursuant to section 125.5 of the Act and the corresponding film and video production services tax credits that are available under provincial legislation in respect of certain salary, wage and remuneration expenses incurred in Canada in relation to the production of a film or video;

"taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act;

"Undistributed Amount" means any cash retained on hand by the Production Services Partnership or any amount due yet unpaid to the Production Services Partnership in respect of (i) the subscription price for Class A Units or Class B Units, or (ii) the XXXXXXXXXX;

"Unit" or "Units" means a unit or units of the Offering Partnership;

"Unit Lender" means XXXXXXXXXX described in Paragraph 7;

"Unit Loan" means a loan to be made available to each Investor pursuant to which the Unit Lender will lend, and an Investor will borrow, an amount to finance an amount up to approximately XXXXXXXXXX% of the subscription price for an Investor's Units;

"Unit Loan Agreement" means the unit loan agreement to be executed between the Unit Lender and an Investor, as described in Paragraph 27; and

"Unit Subscription Price" means the amount paid by a subscriber to the Offering Partnership to acquire a unit of the Offering Partnership.

Our understanding of the relevant facts, proposed transactions and purpose of the proposed transactions is as follows:

FACTS

1. The Offering Partnership was formed on XXXXXXXXXX, as a limited partnership pursuant to the Limited Partnerships Act (XXXXXXXXXX). The business number of the Offering Partnership is XXXXXXXXXX. The General Partner, a corporation incorporated under the XXXXXXXXXX, is the general partner of the Offering Partnership. The General Partner is wholly-owned by CCo, a taxable Canadian corporation, which in turn is wholly-owned by XXXXXXXXXX, which in turn is owned by XXXXXXXXXX (XXXXXXXXXX% of the preferred, non-voting shares) and XXXXXXXXXX% of the common shares are owned by the XXXXXXXXXX (this trust is a Canadian resident trust the trustees of which are XXXXXXXXXX). The General Partner conducts its business from XXXXXXXXXX It files its tax return with the XXXXXXXXXX Tax Services Office. The General Partner will be solely responsible for the daily operating activities of the Offering Partnership. The Initial Limited Partner, a corporation also governed by the XXXXXXXXXX and incorporated on XXXXXXXXXX, is the initial limited partner of the Offering Partnership. Both the General Partner and the Initial Limited Partner are taxable Canadian corporations.

The Offering Partnership will conduct its business from the office of the General Partner. The fiscal year end of the Offering Partnership is XXXXXXXXXX. It is not certain that an investment in Units would constitute a tax shelter (within the meaning of subsection 237.1(1) of the Act) or a tax shelter investment (within the meaning of subsection 143.2(1) of the Act). As a precautionary measure, the Offering Partnership will apply for a tax shelter identification number. The Offering Partnership will obtain a partnership identification number for purposes of the Act and will file its partnership information return in accordance with the Act.

The business of the Offering Partnership includes acquiring, holding and exploiting an equity interest in Class A Units of the Production Services Partnership and such other business as may be determined by the Offering Partnership from time to time. It is intended that the Offering Partnership will acquire interests in other production services partnerships that will provide production services for other films or television programs produced in whole or in part in Canada; however, these are not the subject of this advance income tax ruling request.

2. The Production Services Partnership was formed on XXXXXXXXXX, and registered by declaration dated XXXXXXXXXX, as a limited partnership pursuant to the Limited Partnerships Act (XXXXXXXXXX ). Its business address is the same as that of the General Partner, as described above. The business number of the Production Services Partnership is XXXXXXXXXX. The Production Services Partnership will obtain a partnership identification number for purposes of the Act and will file its partnership information return in accordance with the Act. It is not certain that an investment in the units of the Production Services Partnership would constitute a tax shelter (within the meaning of subsection 237.1(1) of the Act) or a tax shelter investment (within the meaning of subsection 143.2(1) of the Act). As a precautionary measure, the Production Services Partnership will apply for a tax shelter identification number. The Production Services Partnership will be extra-provincially registered in the province of XXXXXXXXXX. The fiscal year end of the Production Services Partnership is XXXXXXXXXX. The initial limited partner of the Production Services Partnership is XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX, XXXXXXXXXX.

The business of the Production Services Partnership will include arranging for, and/or providing, certain production services for the Programs, the expenses of which will be NCLE, and any other activities or businesses determined to be incidental to the foregoing.

PSGP is the general partner of the Production Services Partnership. PSGP is a corporation incorporated under the XXXXXXXXXX, having its head office at XXXXXXXXXX. PSGP files its tax return at the Other Programs Unit, XXXXXXXXXX Taxation Centre.

The duties of PSGP include the administration, management, control, financing and operation of the partnership business, consulting services, maintaining accurate books and records and reporting. In consideration for PSGP performing its obligations under the Production Services Partnership Agreement, PSGP will be entitled to the PSP Fee. PSGP is required to pay certain of the operating expenses, as agreed, that are incurred in the ordinary and usual course of managing the Production Services Partnership's business. Pursuant to the terms of the Production Services Partnership Agreement, PSGP may retain third parties, including related parties, to provide assistance to it in providing such services.

3. ACo and BCo are both taxable Canadian corporations incorporated pursuant to the XXXXXXXXXX. The voting shares of ACo are owned equally by CCo (as described in Paragraph 1) and DCo (owned by XXXXXXXXXX). Dco is also a taxable Canadian corporation.

The shares of BCo are owned by ECo, a taxable Canadian corporation which is wholly-owned by XXXXXXXXXX (as described in Paragraph 1)).

BCo will exclusively co-ordinate the administration aspects of the sale of Units. The business offices of ACo and BCo are XXXXXXXXXX.

4. Studio is a private XXXXXXXXXX corporation and is a wholly-owned subsidiary of XXXXXXXXXX. Studio will own, acquire or control the exclusive underlying rights to authorize production of, and commercially exploit, the Programs. Studio does not have a permanent establishment in Canada in connection with a film or video production business or a film or video production services business.

5. Production Co. is a corporation incorporated under the XXXXXXXXXX and is an affiliate of Studio. Production Co. has a permanent establishment in Canada within the meaning of section 8201 of the Regulations, as it applies for purposes of subsection 125.5(1) of the Act, and will carry on its business in Canada through its permanent establishment. Production Co. will carry on a film or video production services business in Canada for owners of copyrights in productions which will meet the definition of "accredited production" (as defined in the Act and the proposed amendments to the Regulations). Production Co.'s business activities will consist largely of providing production services to Studio for the Programs, the expenses of which will be CLE. Production Co. will provide certain administrative services to Production Services Partnership pursuant to the XXXXXXXXXX Agreement described in Paragraph 14.

6. Producer is a corporation governed by the laws of XXXXXXXXXX. Producer's address is XXXXXXXXXX. Producer will carry on the business of, among other things, arranging for the provision of certain production services for the Programs, the expenses of which will be NCLE.

7. The Unit Lender is a Canadian resident trust formed pursuant to the laws of XXXXXXXXXX. The address of the Unit Lender is XXXXXXXXXX. The trustee of the Unit Lender is XXXXXXXXXX, incorporated under the laws of the province of XXXXXXXXXX. The Unit Lender carries on the business of, inter alia, lending money to Canadian resident investors. The Unit Lender is, and at all material times will be, at arm's length with the Offering Partnership, the Production Services Partnership, and each of the Investors.

8. To the best of your knowledge and that of the taxpayers involved, none of the issues involved in this ruling

i) is in an earlier return of the taxpayer(s) or a related person,

ii) is being considered by a tax services office or taxation centre in connection with
a previously filed tax return of the taxpayer(s) or a related person,

iii) is under objection by the taxpayer(s) or a related person,

iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and

v) is the subject of a ruling previously issued by Revenue Canada or the Canada Customs and Revenue Agency (the "CCRA").

PROPOSED TRANSACTIONS

9. As described more fully below, the Production Services Partnership has agreed to provide, or arrange for, certain production services for the Programs, the expenses of which will be NCLE and Production Co. will provide certain other production services, the expenses of which will be CLE. The total estimated amount of the Production Budget for the Programs is approximately $XXXXXXXXXX of which approximately $XXXXXXXXXX is CLE.

10. Studio will enter into the CLE Production Services Agreement with Production Co. whereby Studio will engage the Production Co. to provide, or arrange for, the provision of certain production services for the Programs. The Production Co. will incur expenses in connection with providing the production services, which expenses will be CLE and will entitle the Production Co. to receive the Tax Credits. Production Co. will be solely responsible for the payment of the CLE and to apply for the available Tax Credits.

As consideration for providing or arranging for the provision of these production services, the Production Co. will receive the CLE Fee from Studio in an amount to be negotiated, but which will exceed the CLE incurred by the Production Co., less the aggregate amount of the Tax Credits received by Production Co. in respect of the Programs. The production services provided or arranged for by the Production Co. will generally include the supply and provision of technical knowledge and expertise by Canadian personnel, and the services of Canadian cast and crew for the Programs. The Production Co. will be responsible for all costs in connection with the remuneration of Canadian personnel, cast and crew for the Programs, and all costs ancillary to the provision of such services.

11. The Studio will also enter into the Producer Services Agreement with the Producer (a corporation with which Studio deals at arm's length) pursuant to which the Producer will agree to arrange for the provision of production services for the Programs. These production services will include those items listed in the Production Budget (including XXXXXXXXXX but excluding XXXXXXXXXX The production services expenditures to be incurred by Producer will also include (i) a payment referred to herein as the "XXXXXXXXXX", to be paid to Studio by Producer, XXXXXXXXXX, and (ii) certain Studio overhead costs representing not more than XXXXXXXXXX% of the Production Budget. XXXXXXXXXX. The Producer will be solely responsible for the payment of the production services expenses [Note: Expenditures in respect of these production services, when incurred by the Production Services Partnership (see Paragraph 12), will constitute NCLE].

As consideration for its services, the Producer will receive a fee from Studio equal to the aggregate of:

(a) XXXXXXXXXX; and

(b) XXXXXXXXXX.

XXXXXXXXXX

12. Concurrently with entering into the Producer Services Agreement, the Producer will enter into the NCLE Production Services Agreement with the Production Services Partnership. Under the terms of the NCLE Production Services Agreement, the Production Services Partnership will agree to provide, or arrange for the provision of the production services for the Programs, the expenses of which will be NCLE. The NCLE Production Services Agreement will further provide for the Production Services Partnership to subcontract with XXXXXXXXXX to engage XXXXXXXXXX cast and crew for the Programs on behalf of the Production Services Partnership and, if requested by the Production Services Partnership, to provide other XXXXXXXXXX services (including XXXXXXXXXX. NCLE will generally include those items listed in the Production Budget (including XXXXXXXXXX but excluding XXXXXXXXXX It will also include the amount of payments to be made by the Production Services Partnership to the Producer equal to the amount of (i) the XXXXXXXXXX (see Paragraph 11), and (ii) certain Studio overhead costs representing not more than XXXXXXXXXX% of the Production Budget. The NCLE Production Services Agreement will provide that the Production Services Partnership will be responsible for all NCLE.

13. As consideration for providing the production services, the Production Services Partnership will receive a production services fee equal to the aggregate of:

(a) XXXXXXXXXX; and

(b) XXXXXXXXXX.

The Production Services Partnership's entitlement to the above-noted production services fee is dependent upon satisfactory performance of the production services by the Production Services Partnership, and there is no guarantee or assurance that the fee will be paid if the services are not provided. All amounts earned on account of the production services fee will be reported for income tax purposes on an accrual basis in accordance with established case law principles or rules of law, and well-accepted business principles.

The NCLE Production Services Agreement will further provide that principal photography of the majority of the episodes included in the Programs will commence prior to XXXXXXXXXX. Moreover, the NCLE Production Services Agreement will stipulate as to the nature and scope of the production as well as the particulars of the production schedule and the production budget for the Programs.

14. The Production Services Partnership and the Production Co. will enter into the XXXXXXXXXX Agreement. Under the XXXXXXXXXX Agreement, the Production Services Partnership will receive certain XXXXXXXXXX services to be provided by the Production Co. (XXXXXXXXXX). As consideration for such services, the Production Services Partnership will pay the XXXXXXXXXX Fee to Production Co. in an amount to be negotiated.

15. The Production Services Partnership and Studio will enter into the XXXXXXXXXX Agreement. Under the XXXXXXXXXX Agreement, Studio will agree to XXXXXXXXXX The Production Services Partnership will pay Studio the XXXXXXXXXX Fee in an amount to be negotiated in consideration for such services.

16. Production Services Partnership will enter into the XXXXXXXXXX Agreement with the Producer under which the Producer will provide a number of services to the Production Services Partnership XXXXXXXXXX The Production Services Partnership will pay XXXXXXXXXX Fee to the Producer for the services provided by the Producer under the XXXXXXXXXX Agreement which fee is yet to be negotiated.

17. The Studio will exercise its approval rights in relation to a variety of artistic and creative decisions for the Programs in accordance with industry practice. In accordance with standard industry practice, the Producer will ensure that Studio, the Production Co. and/or the Producer will maintain a policy or policies of insurance (with each named as an insured beneficiary) to insure against all appropriate risks including the following:

(a) death or disability of a principal performer;

(b) loss or destruction of the master tape, original negative or sound track of the Programs, or of sets, props or equipment;

(c) errors and omissions in the Programs;

(d) third party liability; and

(e) infringement of copyright, libel and slander, defamation of character, invasion of privacy and right of publicity.

Insurance costs included in the production budget for the Programs will form part of the NCLE. Pursuant to the XXXXXXXXXX Agreement, the Producer is required to ensure that the Production Services Partnership and the PSGP are named as insured in the insurance policies.

18. Both the CLE Production Services Agreement and the NCLE Production Services Agreement will provide that ownership of all results of the production services referred to herein, including any tangible property and equipment purchased and supplied in connection with the production services, will immediately vest in and be retained by Studio. Copyrights and rights of exploitation in the Programs will be legally and beneficially owned by Studio. The CLE Production Services Agreement and the NCLE Production Services Agreement will also stipulate that Studio will own the entire interest in the Programs, including copyrights, and will have control over decisions respecting the exploitation of the Programs. All copyrighted works incorporated into the Programs, or upon which the Programs are based, will be owned by Studio as "works made for hire" for purposes of U.S. copyright law, and/or "works done in the course of employment" for purposes of Canadian copyright law.

19. The Production Services Partnership will prepare, or cause to be prepared, any production reports that may be reasonably required. All applicable laws, statutes, levies, regulations and requirements of all governmental agencies and regulatory bodies will be complied with by the Production Services Partnership. In addition, the Production Services Partnership will duly apply for all necessary consents, licenses and permits which may be necessary in connection with the Programs. In addition, the Production Services Partnership will, where necessary, recognize the rules of applicable film industry guilds and unions, and may subcontract with Serviceco, as described in Paragraph 12. The Production Services Partnership will also take all reasonable steps to ensure that any personnel who provide services for the Programs and who claim any copyright or moral rights related to the Programs will execute such assignments and waivers that may reasonably be required.

20. If Studio or an appointed distributor has not released or distributed the Programs by the Release Date in a manner consistent with the NCLE Production Services Agreement, the Production Services Partnership will be entitled to elect to substitute other programs or productions for the purpose of calculating the net revenue component of the production services fee owing to it. For this purpose, Studio will designate a substituted program or production owned by Studio, acceptable to Production Services Partnership, which program or production is a comparable program or production produced in whole or in part during the XXXXXXXXXX years, which has not been released or distributed prior to the Release Date and for which there is no ascertainable net revenue at the time the substitution is made.

21. In order to fund NCLE and GST thereon, in respect of the Programs, the Studio will lend and the Producer will borrow amounts, as required, pursuant to the Studio/Producer Loan. The Studio/Producer Loan will be XXXXXXXXXX. The Producer will have the option to prepay any outstanding principal amount on the Studio/Producer Loan at any time, without notice, bonus or penalty. The Studio/Producer Loan will provide Studio with full recourse to all assets of the Producer. The proceeds of the Studio/Producer Loan will be used by the Producer to make the XXXXXXXXXX Loan. The XXXXXXXXXX Loan is XXXXXXXXXX. The XXXXXXXXXX will have the option to prepay any outstanding principal amount on the XXXXXXXXXX Loan at any time, without notice, bonus or penalty. The XXXXXXXXXX Loan will provide Producer with full recourse to all assets of XXXXXXXXXX. The XXXXXXXXXX Loan will be used by the XXXXXXXXXX to make the Interim Production Loan to the Production Services Partnership, as described in Paragraph 22. As consideration for the availment of credit under the XXXXXXXXXX Loan, XXXXXXXXXX will be required to pay to XXXXXXXXXX a XXXXXXXXXX fee, which is yet to be negotiated but which will be reasonable and of the same magnitude as such fees on similar risk loans.

22. (a) XXXXXXXXXX will enter into the Interim Production Loan Agreement with the Production Services Partnership pursuant to which XXXXXXXXXX will establish a loan facility in favour of the Production Services Partnership. As consideration for the availment of credit under the Interim Production Loan, the Production Services Partnership will pay the XXXXXXXXXX Fee to XXXXXXXXXX, in an amount equal to the fee paid to the Producer under the XXXXXXXXXX Loan, which is yet to be negotiated but which will be reasonable and of the same magnitude as such fees on other similar risk loans. The purpose of the Interim Production Loan is to fund the NCLE that will be incurred by the Production Services Partnership prior to the issuance of the Class A Units, Class B Units (in the event the Class B Unit Option is exercised) and the receipt of the production services fee from the Producer. The Interim Production Loan will be a revolving loan facility to be drawn in several instalments as required to meet NCLE obligations on a current basis. The Interim Production Loan will be XXXXXXXXXX. The maximum amount that may be drawn is an amount equal to the NCLE plus XXXXXXXXXX% to finance interim GST obligations. Any amounts drawn down under the credit facility will not be repayable until XXXXXXXXXX, however, the Production Services Partnership will be permitted to prepay the whole or any part of the loan at any time without notice, bonus or penalty. The Interim Production Loan will provide XXXXXXXXXX with full recourse to all assets of the Production Services Partnership. As security for all obligations of the Production Services Partnership to XXXXXXXXXX with respect to the Interim Production Loan, the Production Services Partnership will grant to XXXXXXXXXX a continuing security interest in all of its present and subsequently acquired property and assets. Likewise, XXXXXXXXXX will assign its rights with respect to the Interim Production Loan and the security therefor to the Producer to secure its obligation under the XXXXXXXXXX Loan. Similarly, the Producer will assign its rights with respect to the XXXXXXXXXX Loan and the security therefor to Studio to secure its obligations under the Studio/Producer Loan. Each of the Producer, XXXXXXXXXX and the Production Services Partnership will be solely responsible to repay its indebtedness under the Studio/Producer Loan, the XXXXXXXXXX Loan and Interim Production Loan, respectively.

(b) In addition, it is expected that the Production Services Partnership will also need to borrow an amount (the "Short-term Loan") from XXXXXXXXXX in order to finance its other ongoing (non-NCLE) expenses prior to XXXXXXXXXX will, in turn, borrow the same amount of funds from ACo (the terms of any such loan would be full recourse and interest bearing (commercial interest rate) and would be repaid in full on or before XXXXXXXXXX). The amount to be borrowed pursuant to the Short-term Loan will depend upon the date the Offering Partnership acquires Class A Units in the Production Services Partnership. If the closing occurs prior to XXXXXXXXXX, the amount to be borrowed by the Production Services Partnership will be approximately $XXXXXXXXXX per Unit. If the closing occurs after XXXXXXXXXX, but prior to XXXXXXXXXX , the amount to be borrowed will be approximately $XXXXXXXXXX per Unit. It is not expected that the Production Services Partnership will need to borrow under the Short-term Loan if the closing occurs after XXXXXXXXXX. The Short-term Loan will be repaid in full on or before XXXXXXXXXX, will be XXXXXXXXXX and will provide XXXXXXXXXX with full recourse to all assets of the Production Services Partnership.

23. Pursuant to the XXXXXXXXXX Agreement, the Producer is required to arrange or procure the XXXXXXXXXX Loan. The Producer will ensure that the XXXXXXXXXX Lender will enter into the XXXXXXXXXX with the Production Co. pursuant to which the XXXXXXXXXX The purpose of the XXXXXXXXXX is to fund the XXXXXXXXXX that will be incurred by XXXXXXXXXX prior to the receipt of the XXXXXXXXXX and the XXXXXXXXXX which will be earned by XXXXXXXXXX in respect of the XXXXXXXXXX.

24. The Production Co. will establish a production bank account for the benefit of Production Co., PSGP, and the Production Services Partnership. The proceeds from the Interim Production Loan and from the XXXXXXXXXX will be deposited into the production bank account or an account maintained by Serviceco, as applicable, to be used by Production Co. to fund the XXXXXXXXXX and by the Production Services Partnership to fund NCLE.

25. There will be a confidential offering memorandum (the "Offering Memorandum") provided to prospective Investors of the Offering Partnership. At various times throughout XXXXXXXXXX, Investors will enter into Subscription Agreements with the Offering Partnership and thereby agree to acquire Units of the Offering Partnership. It is anticipated that there will be a number of Closings but in no event will a Closing occur after XXXXXXXXXX. The Offering Memorandum will contain the following:

"THE RULING OBTAINED FROM THE CANADA CUSTOMS AND REVENUE AGENCY CONTAINS CAVEATS. THE RULING MAY BE VIEWED ON REQUEST, SUBJECT TO THE SIGNING OF A CONFIDENTIALITY AGREEMENT."

The offering of Units by the Offering Partnership will consist of an unlimited number of Units. There will be certain minimum purchase requirements which vary based on the jurisdiction of residence of the subscriber. Provided the minimum number of Units is purchased by a subscriber, fractional Units may be acquired. The total amount expected to be raised by the Offering Partnership with respect to the Proposed Transactions described herein is approximately $XXXXXXXXXX. The total number of Units expected to be sold with respect to the Proposed Transactions described herein related to the Programs is approximately XXXXXXXXXX Units.

Given the Offering Partnership's intention to acquire Units in a number of other production services partnerships that will provide production services for other films or television programs to be produced in whole or in part in Canada in XXXXXXXXXX but that such acquisitions have not yet been determined (and which are not the subject of this advance ruling request), there is no certainty at the present time regarding the number of Units that will be offered under the Offering Memorandum.

26. The Unit Subscription Price is $XXXXXXXXXX per Unit. The Unit Subscription Price may be re-set from time to time throughout the period of the offering by the issuance of an amended offering memorandum. However, Investors who are financing the purchase of Units with an Unit Loan, as described in the following Paragraph will be required to pay an aggregate amount equal to the Unit Subscription Price plus approximately $XXXXXXXXXX (the "Prepaid Interest Amount") to the Offering Partnership in respect of each Unit. The Prepaid Interest Amount will be used, in part, to pay the Loan Arrangement Fee and the balance will be applied to pay, in part, future interest obligations on the Unit Loans. A portion of the Unit Subscription Price and Prepaid Interest Amount (where applicable) payable by Investors may be satisfied by the delivery of post-dated cheques. This unpaid balance of the Unit Subscription Price is secured by a security interest in the Unit granted by the Investor to the Offering Partnership. All but a small portion of this amount will be due before XXXXXXXXXX, and the balance (represented by the post-dated cheques, if any) will be due on or before XXXXXXXXXX.

27. Investors may choose to finance up to approximately XXXXXXXXXX % of their investment in Units by way of a Unit Loan from the Unit Lender. The Unit Loan Agreement will provide, inter alia, that the Unit Loan will be a full recourse loan to the Investor such that the Investor will be obligated to repay its Unit Loan in its entirety and all interest thereon. No Unit Loans will be issued prior to XXXXXXXXXX. Amounts owing under the Unit Loan will be due and payable on or before XXXXXXXXXX. Interest accruing in any year on a Unit Loan must be paid by the Investor to the Unit Lender on or before XXXXXXXXXX of the next year. Until XXXXXXXXXX, the annual interest rate payable on the unpaid principal amount of a Unit Loan will be equal to XXXXXXXXXX A Unit Loan may be prepaid at any time by an Investor in whole or in part without notice, penalty or bonus. Each Unit Loan will be evidenced by a promissory note and will be secured by a pledge and assignment of the Investor's Units in favour of the Unit Lender and an assignment of the right to receive any and all distributions from the Offering Partnership. Investors will also pay the Loan Arrangement Fee in respect of their Unit Loan.

28. Investors must pay the balance of the Unit Subscription Price for their Units from their own resources (i.e., other than with the Unit Loan) and must represent and warrant in the Subscription Agreement that any financing arranged for the subscription of Units (including any financing for an Investor who chooses not to enter into a Unit Loan Agreement) will not constitute a "limited-recourse amount" for purposes of the Act.

29. Following the acquisition of Units by Investors, the Initial Limited Partner's interest in the Offering Partnership will be redeemed.

30. The Offering Partnership Agreement will provide that all allocations of income and losses and all distributions of cash from the Offering Partnership will be XXXXXXXXXX% to the Investors (subsequently allocated pro rata to each Investor in accordance with their respective cash capital contributions to the Offering Partnership) and XXXXXXXXXX% to the General Partner.

31. The Offering Partnership will pay the OP Fee to the General Partner for the XXXXXXXXXX services provided to the Offering Partnership by the General Partner including XXXXXXXXXX From this fee, the General Partner will be obligated to pay certain of the operating expenses incurred in the ordinary and usual course of managing the Offering Partnership's business, as agreed. Pursuant to the terms of the Offering Partnership Agreement, the General Partner may retain third parties, including related parties, to provide assistance to it in providing such services. In this regard, ACo will provide management, consulting and administrative services to the General Partner and assist in the assessment and application of the investment criteria for potential investment in the Production Services Partnership. In return, ACo will receive a fee, to be negotiated.

Pursuant to the XXXXXXXXXX Agreement, ACo will agree to provide assistance to the Offering Partnership in connection with the issuance of Units of the Offering Partnership to the public and the completion of the Offering, including, without limitation, retaining and instructing legal counsel and other consultants and professional advisors. As part of its duties, ACo will pay, or cause to be paid, the costs and expenses of the Offering. In return, the Offering Partnership will pay to ACo the Issue Fee.

Pursuant to the BCo Sales Agency Agreement, BCo will exclusively co-ordinate the administration aspects of the sale of the Units and as consideration therefor, BCo will receive the BCo Sales Commission from the Offering Partnership, being approximately XXXXXXXXXX BCo will introduce licensed brokers or investment dealers and, where permitted under applicable securities laws, unregistered agents, to the General Partner to serve as sub-agents in connection with the sale of Units. BCo is solely responsible for compensating any of its sub-agents.

The Offering Partnership may also incur certain additional and other fees and expenses in connection with the issuance of Units and its operations.

32. The number of authorized Class A Units to be issued by the Production Services Partnership is unlimited. The Class A Unit Subscription Price will be $XXXXXXXXXX per Unit. Each Class A Unit will entitle the holder to one vote per Unit at any meeting of the Production Services Partnership.

The Offering Partnership will use not less than XXXXXXXXXX% of the Unit Subscription Price for the Units to acquire Class A Units of the Production Services Partnership. If some Investors use post-dated cheques to fund a portion of their Unit Subscription Price, the unpaid portion of the Unit Subscription Price must be paid in full on or before XXXXXXXXXX. In this case, it would be likely that the Offering Partnership would not be able to pay a portion of the subscription price payable to the Production Services Partnership for each Class A Unit at the time of subscription. Any balance of the subscription price for the Class A Units will be paid in full before the end of

June 2002, and prior to that date will be evidenced by a non-interest bearing promissory note from the Offering Partnership to the Production Services Partnership. The Offering Partnership will immediately become a limited partner in the Production Services Partnership, once the Offering Partnership has subscribed for the Class A Units and its name has been added to the record of limited partners of the Production Services Partnership. This is so whether the subscription price is paid in full at the time of subscription or is financed, as described herein.

The acquisition of Class A Units of the Production Services Partnership by the Offering Partnership will occur prior to there being any ascertainable net revenues from the exploitation of the Programs. Following the acquisition of the Class A Units by the Offering Partnership, the interest of the initial limited partner of the Production Services Partnership will be redeemed.

33. The Production Services Partnership will also grant, XXXXXXXXXX, a Class B Unit Option to the Producer, or its designate, pursuant to which the holder of the Class B Unit Option will be entitled to acquire, at its option, a number of Class B Units (XXXXXXXXXX) at any time during the Exercise Period. The terms of the Class B Unit Option will be such that it will only be exercisable by a resident of Canada. As such, the Producer will direct that the Class B Unit Option be granted to XXXXXXXXXX, a Canadian resident trust of which the Producer is the primary beneficiary. The exercise price for each Class B Unit will be XXXXXXXXXX of the Class B Unit as reasonably determined by the General Partner on an annual basis, which price is $XXXXXXXXXX per Class B Unit until XXXXXXXXXX. In order to maintain the right to exercise the Class B Unit Option, the holder must pay the XXXXXXXXXX Fee on or before XXXXXXXXXX of each year. This XXXXXXXXXX Fee will increase annually on the anniversary date of the grant of the Class B Unit Option. The XXXXXXXXXX Fee will be prorated on a daily basis in the year the Class B Unit Option is exercised, if ever.

34. Should the holder of the Class B Unit Option choose to exercise the option, the holder will be solely responsible to finance the subscription amount for the Class B Units. The subscription amount may be financed by way of a loan from the Producer, a loan from an arm's length lender, or the acquisition by Studio of a right to receive a portion of any income or capital distributions made to the holder of the Class B Units. In no event will the Class B Option be exercised before XXXXXXXXXX.

If a holder of a Class B Unit Option exercises the option during the Exercise Period, the holder will have the right to pay the Class B Unit Option exercise price at any time up to and including XXXXXXXXXX However, should the holder opt to defer payment of all or any portion of the Class B Unit Option exercise price, the holder will be required to pay interest, at a negotiated rate, to the Production Services Partnership on any unpaid balance for the Class B Units from the date of exercise to the date of full payment. Until XXXXXXXXXX, the interest payable on the unpaid balance will bear interest at a rate equal to the greater of XXXXXXXXXX.

The holder of the Class B Unit Option will immediately become a limited partner in the Production Services Partnership after the holder exercises the Class B Unit Option and the holder's name is added to the record of limited partners of the Production Services Partnership. This is so whether the exercise price is paid in full at the time of exercise or the holder finances the subscription amount, as described above. Once issued, each Class B Unit will entitle the holder to one vote per Unit at any meeting of the Production Services Partnership. The Class B Unit Options are discretionary and there is no guarantee that Class B Unit Options will ever be exercised. In no circumstances will the number of Class B Units issued exceed the number of Class A Units issued.

35. The Production Services Partnership Agreement will provide that all allocations of income and losses will be XXXXXXXXXX% to the limited partners and XXXXXXXXXX% to the General Partner. Moreover, it will provide that for accounting purposes and for income tax purposes the limited partners' share of income and losses of the Production Services Partnership (including any amount of interest earned by the Production Services Partnership on the Undistributed Amount) will generally be allocated in each fiscal period to the holder of Class A Units (being the Offering Partnership) and the holders (if any) of Class B Units, based upon their respective cash capital contributions to the Production Services Partnership as at the last day of the relevant fiscal period.

XXXXXXXXXX

36. The subscription proceeds from the Class A Units will be used primarily to incur NCLE and to repay a portion of the Interim Production Loan and the Short-term Loan. The XXXXXXXXXX will use the proceeds of the partial repayment of the Interim Production Loan to repay the XXXXXXXXXX Loan. The proceeds may also be used to pay the XXXXXXXXXX Fee, the XXXXXXXXXX Fee, the XXXXXXXXXX Fee, the XXXXXXXXXX Fee and the XXXXXXXXXX Fee. The Production Services Partnership may also incur certain additional fees and expenses in connection with its operations. The funds from the production services fees that are earned by the Production Services Partnership will also be used to re-pay a portion of the Interim Production Loan.

Depending on the timing of the exercise of the Class B Unit Option, if ever, the subscription proceeds for the Class B Units will be used to incur NCLE and to repay the Interim Production Loan and the Short-term Loan, or to pay ongoing expenses of the Production Services Partnership, with any balance forming part of the Undistributed Amount.

37. The Production Services Partnership may distribute a portion of its Undistributed Amount at the end of the XXXXXXXXXX calendar year, which in the discretion of the PSGP is not required in the operations of the Production Services Partnership. To the extent the Offering Partnership, as the Class A Unitholder, receives such distribution, it may in turn make a distribution to Investors in accordance with the terms of the Offering Partnership Agreement.

PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the Proposed Transactions is to:

(i) afford Canadian subscribers the opportunity to invest in the film and television industry through the provision of production services in Canada, thereby providing Investors with the opportunity to participate financially in the receipts generated from the exploitation of films and television programs; and

(ii) to encourage and facilitate the production of films and television programs in Canada by foreign producers, thereby creating employment in Canada and utilizing and enhancing the expertise of Canadian production personnel.

RULINGS

Provided that the statement of facts, the proposed transactions and the purposes thereof, all as described above, are accurate and constitute complete disclosure of all of the representations, relevant facts, proposed transactions and the purposes thereof, and provided further that all of the proposed transactions are carried out as described above, and that the offering documents and executive summary contain a reference, such as described in Paragraph 25, in respect of the existence of caveats in the rulings given, and provided that the Production Services Partnership and the Offering Partnership are partnerships at law and that all the relevant facts and proposed transactions described are, or will be, legally effective, we confirm the following:

A. The NCLE incurred by the Production Services Partnership after the date of this letter and forming part of the production services rendered by it pursuant to the NCLE Production Services Agreement referred to above in Paragraph 12 will, subject to the application of subsections 143.2(6) and (10) of the Act and subject to the provisions of section 18.1 of the Act, be deductible in the computation of the Production Services Partnership's income or loss for the relevant taxation year in which the expenses are incurred, pursuant to section 9 of the Act, to the extent that:

(i) such reporting is not inconsistent with established case law principles orrule of law and with well-accepted business principles;

(ii) the outlays and expenses are reasonable in amount and are not on account of capital; and

(iii) the outlays and expenses are made or incurred for the purpose of gaining or producing income from a business with a reasonable expectation of profit.

B. Pursuant to subsection 18.1(15) of the Act, section 18.1 of the Act will not apply to restrict the deductibility of the NCLE incurred by the Production Services Partnership in a taxation year pursuant to the NCLE Production Services Agreement referred to above in Paragraph 12, provided that before the end of the taxation year in which such NCLE are incurred, amounts included in computing the Production Services Partnership's income for that year (other than any portion of such an amount that is the subject of a reserve claimed by the Production Services Partnership for the year under the Act) in respect of the NCLE Production Services Agreement, exceed 80% of such NCLE.

C. Losses for a taxation year of the Production Services Partnership which are allocated to a holder of Class A Units and Class B Units (if then issued) by the Production Services Partnership, in accordance with the terms of the Production Services Partnership Agreement referred to in Paragraph 35, will, subject to the application of subsections 143.2(6) and (10) of the Act, be deductible in computing the income or loss of such holder at the end of the taxation year of such holder in which such taxation year of the Production Services Partnership ends, to the extent of the at-risk amount (as defined in subsection 96(2.2) of the Act) of the holder in respect of the Production Services Partnership at the end of that taxation year.

D. Losses for a taxation year of the Offering Partnership which are allocated by the Offering Partnership to an Investor, in accordance with the terms of the Offering Partnership Agreement referred to in Paragraph 30, will, subject to the application of subsections 143.2(6) and (10) of the Act, be deductible in computing the income or loss of such Investor at the end of the Investor's taxation year in which such taxation year of the Offering Partnership ends, to the extent of the at-risk amount (within the meaning of subsection 96(2.2) of the Act) of such Investor in respect of the Offering Partnership at the end of that taxation year.

E. Subject to the application of paragraphs 96(2.2)(b), (b.l) and (c) of the Act, the at-risk amount, within the meaning of subsection 96(2.2) of the Act, of an Investor in respect of the Offering Partnership, at the end of the XXXXXXXXXX taxation year of the Offering Partnership, will be equal to the amount of the Investor's investment in Units of the Offering Partnership, as described in Paragraph 26, to the extent such Investor or a person with whom such Investor does not deal at arm's length, does not receive or obtain any amount or benefit referred to in paragraph 96(2.2)(d) of the Act, other than an amount or benefit excluded by one of subparagraphs (i), (iii), (vi) or (vii) thereof. Paragraph 26 states that a portion of the Unit Subscription Price may be satisfied by the delivery of post-dated cheques. Consequently, reference is also made to Opinion 3, below.

F. Subject to the application of paragraphs 96(2.2)(b), (b.l) and (c) of the Act, the at-risk amount, within the meaning of subsection 96(2.2) of the Act, of the Offering Partnership in respect of the Production Services Partnership, at the end of the 2001 taxation year of the Production Services Partnership, will be equal to the amount of the Offering Partnership's investment in the Class A Units, as described in Paragraph 32, to the extent the Offering Partnership or a person with whom the Offering Partnership does not deal at arm's length, does not receive or obtain any amount or benefit referred to in paragraph 96(2.2)(d) of the Act, other than an amount or benefit excluded by one of subparagraphs (i), (iii), (vi) or (vii) thereof. Paragraph 32 states that it is likely that the Offering Partnership would not be able to pay a portion of the subscription price for each Class A Unit at the time of subscription. Consequently, reference is also made to Ruling J and Opinion 4, below.

G. For greater certainty, the Production Services Partnership's entitlement to the production services fee referred to in Paragraph 13 above will not constitute an amount or benefit for the purposes of calculating the at-risk amount, within the meaning of subsection 96(2.2) of the Act, of (a) an Investor in respect of the Offering Partnership or (b) the Offering Partnership in respect of the Production Services Partnership.

H. Subject to the application of subsections 18(9) and (9.2) to (9.8) of the Act, interest paid in a taxation year or payable in respect of a taxation year by an Investor (depending upon the method regularly followed by such Investor in computing income) in connection with the Unit Loan will be deductible by such Investor in computing income in that taxation year in accordance with paragraph 20(l)(c) of the Act, to the extent that the amount thereof is reasonable and paid pursuant to a legal obligation to pay interest on borrowed money used for the purpose of earning income from a business or property with a reasonable expectation of profit.

I. If an interest in the Production Services Partnership constitutes a tax shelter investment, within the meaning of subsection 143.2(1) of the Act, then by virtue of the application of subsection 143.2(8) of the Act, any amount of unpaid principal which the Production Services Partnership owes to XXXXXXXXXX under the Interim Production Loan or the Short-term Loan will be a limited-recourse amount, as defined in subsection 143.2(1) of the Act, of the Production Services Partnership with the result that:

(i) the provisions of subsection 143.2(6) of the Act will apply to reduce the Production Services Partnership's expenditures (including the amounts of the NCLE) to the extent that the amount of the Interim Production Loan or the Short-term Loan can reasonably be considered to relate to such expenditures incurred by the Production Services Partnership;

(ii) at the time that all or a portion of the Interim Production Loan, or the Short-term Loan, is repaid by the Production Services Partnership, the provisions of subsection 143.2(10) of the Act will apply to deem such expenditures to have been made or incurred at the time of, and to the extent of, the payment, provided such repayment is not part of a series of loans or other indebtedness and repayments; and

(iii) the Interim Production Loan and the Short-term Loan will not, in and of themselves, result in the application of subsection 143.2(6) of the Act to reduce the cost of the Class A Units acquired by the Offering Partnership or the cost of the Units in the Offering Partnership acquired by the Investors.

J. If an interest in the Offering Partnership constitutes a tax shelter investment, within the meaning of subsection 143.2(1) of the Act, then by virtue of the application of subsection 143.2(8) of the Act, any amount owing by the Offering Partnership to the Production Services Partnership in respect of the unpaid portion of the subscription price in respect of Class A Units of the Production Services Partnership will be a limited-recourse amount, as defined in subsection 143.2(1) of the Act, of the Offering Partnership with the result that:

• the provisions of subsection 143.2(6) of the Act will apply to reduce the Offering Partnership's expenditures to the extent that the amount of such outstanding amounts can reasonably be considered to relate to such expenditures incurred by the Offering Partnership;
• at the time that all or a portion of the outstanding amounts are repaid by the Offering Partnership, the provisions of subsection 143.2(10) of the Act will apply to deem such expenditures to have been made or incurred at the time of, and to the extent of, the payments, provided such repayment is not part of a series of loans or other indebtedness and repayments; and
• the amount owing to the Production Services Partnership in respect of the Class A Units will not, in and of itself, result in the application of subsection 143.2(6) of the Act to reduce the cost of the Units in the Offering Partnership acquired by the Investors.

K. The following entitlements will not, in and of themselves, result in the application of subsection 143.2(6) of the Act to reduce the amount of an Investor's expenditure to acquire Units of the Offering Partnership:

(i) the distribution of capital by the Production Services Partnership to the holders of Class A Units and Class B Units, as described in Paragraph 35 above; and

(ii) the Production Services Partnership's entitlement to the production services fee, as described in Paragraph 13.

L. Subject to the application of subsections 18(9) and (9.2) to (9.8) of the Act, in the event that the holder of the Class B Unit Option decides to exercise the Option but to defer payment of the Class B Unit subscription amount, the interest paid or payable in a year by the holder of the Class B Unit Option (depending upon the method regularly followed by the holder) to the Production Services Partnership will be deductible by such holder in computing income in that taxation year in accordance with paragraph 20(1)(c) of the Act, to the extent the amount thereof is reasonable and paid pursuant to a legal obligation to pay interest on an amount payable for property acquired for the purpose of earning income from a business or property with a reasonable expectation of profit.

M. Notwithstanding that the Class A Unitholder of the Production Services Partnership receives an entitlement to a priority distribution of available cash over any Class B Unitholder (as described in Paragraph 35), such priority distribution will not reduce the at-risk amount, within the meaning of subsection 96(2.2) of the Act, of (i) the Offering Partnership's interest in the Production Services Partnership, or (ii) an Investor's interest in the Offering Partnership.

COMMENTS

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R4 issued by the CCRA on January 29, 2001, and are binding provided the proposed transactions are entered into on or before XXXXXXXXXX. These rulings are based on the draft documents provided to us and are based on the Act in its present form and do not take into account the effect of any proposed amendments. Except as expressly stated, our rulings do not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions. In particular, nothing in this letter should be interpreted as confirming, either expressly or implicitly:

a) the reasonableness or fair market value of any expenditures referred to in this letter;

b) the proper established case law principles or rules of law, or well-accepted business principles applicable in the determination of the timing of the deduction of the cost of any of the production expenses incurred by the Production Services Partnership;

c) the existence of a reasonable expectation of profit for any of Production Co., the Production Services Partnership, the Offering Partnership or any Investor;

d) whether the Production Services Partnership, Production Co., Producer or any affiliate of Producer will be acting as a legal agent for Studio in respect of the making of the Programs;

e) the applicability or non-applicability of subsection 245(2) of the Act;

f) the GST implications of any of the proposed transactions;

g) the applicability or non-applicability of paragraph 96(2.2)(d) of the Act, except as expressly set stated in this letter; and

h) any other tax consequences of the proposed transactions or of related transactions or events that are not described herein.

As stated in paragraph 7 of Information Circular 70-6R4, rulings are not provided for transactions that are not seriously contemplated and are hypothetical in nature. Therefore, notwithstanding that the Offering Partnership will acquire interests in other production services partnerships which will each provide production services for other films or television programs (refer to paragraphs 1 and 25, above), we are not ruling on the Offering Partnership's investment in any partnerships other than its investment in the Production Services Partnership, nor are we ruling in respect of any film or other television program except for the Programs, all as described herein.

OPINIONS

1) It is our opinion that Production Co., as described above in paragraph 5, will be an "eligible production corporation" for a particular taxation year, within the meaning of subsection 125.5(1) of the Act, in respect of the Programs provided that all of the following conditions are met:

(i) the activities of Production Co. in the year are carried on in Canada through a "permanent establishment" (as defined in section 8201 of the Regulations) in Canada;

(ii) the activities of Production Co. in the year consist solely of (a) providing film and video production services; and (b) providing services to Production Services Partnership pursuant to the XXXXXXXXXX Agreement, as described above in paragraph 14;

(iii) draft section 9300 of the Regulations is enacted as proposed and each of the episodes in the Programs is an "accredited production" within the meaning thereof;

(iv) Production Co. contracts directly with Studio to provide the production services pursuant to the CLE Production Services Agreement;

(v) Studio is not an "eligible production corporation", as defined in subsection 125.5(1) of the Act in respect of the Programs; and

(vi) Production Co. is not, at any time in the year, a corporation described in any of paragraphs (c) to (e) of the definition of "eligible production corporation" in subsection 125.5(1) of the Act.

2) If any amount of gross revenue related to the Programs is ascertainable, whether contingent or otherwise, at the time that Units of the Offering Partnership are acquired by an Investor, or at the time that Class A Units of the Production Services Partnership are acquired by the Offering Partnership, it is our opinion that this would affect the at-risk amount of the Investor and the Offering Partnership, as the case may be, to the extent that the amount or benefit of such ascertainable revenue was granted for any of the purposes described in paragraph 96(2.2)(d) of the Act.

3) Where a portion of the Unit Subscription Price payable by an Investor is satisfied by the delivery of a post-dated cheque, as described in Paragraph 26, depending on the facts, it is our opinion that either

(i) paragraph 96(2.2)(c) of the Act will apply to reduce the at-risk amount of the Investor until the post-dated cheque is cashed, or alternatively,

(ii) subsection 143.2(7) of the Act will apply to deem the amount of the post-dated cheque, to be a limited-recourse amount such that subsection 143.2(6) of the Act will apply thereto and subsections 143.2(10) and (12) of the Act will apply to any repayments thereof.

4) Where a portion of the subscription price for the Class A Units is payable by the Offering Partnership to the Production Services Partnership, as described in Paragraph 32, and where an interest in the Offering Partnership is not a tax shelter investment [so that Ruling J does not apply], then it is our opinion that paragraph 96(2.2)(c) of the Act will apply to reduce the at-risk amount of the Offering Partnership by the unpaid amount, until the subscription price is paid.

As indicated in paragraph 22 of Information Circular 70-6R4, an expression of opinion is not an advance income tax ruling and, accordingly, is not binding on the CCRA.

Yours truly,

XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch