14 May 1998 External T.I. 9810995 - CANADIAN FILM OR VIDEO PRODUCTION 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:

Requested a brief explanation of the Canadian film or video production tax credit.

Position:

General overview provided as well as an overview of the proposed film or video production services tax credit.

Reasons:

981099
XXXXXXXXXX Allan Nelson
(613) 957-9768

May 14, 1998

Dear XXXXXXXXXX:

Re: Canadian Film or Video Production Tax Credit

This is in reply to your telephone conversation with Mr. Rick Biscaro of our office on April 28, 1998 wherein you requested information concerning the Canadian film or video production tax credit.

Your questions appear to relate to a specific factual situation. As noted in Information Circular 70-6R3 (copy attached), we do not provide opinions with respect to proposed factual transactions other than in reply to an advance income tax ruling request. If the transaction has already been completed, we recommend that you discuss the issue with your local tax services office. However, we will offer the following general comments concerning the amount of the available credit and what is needed to qualify. To be clear, the following discussion is general in nature and is not intended to be a complete description of the applicable legislation. We hope this will be of assistance to you.

Canadian Film or Video Production Tax Credit

Section 125.4 of the Income Tax Act provides for a Canadian film or video production tax credit. It is a refundable credit that may be claimed by a qualified corporation in respect of a Canadian film or video production, where the principal filming or taping of the production began before the end of the year. The terms qualified corporation and Canadian film or video production are defined in the Income Tax Act and the Regulations to that Act. Generally speaking, with some exceptions, the corporation must be a taxable Canadian corporation that is Canadian controlled, as determined for the purposes of sections 26 to 28 of the Investment Canada Act. Its activities must be primarily the carrying on of a business that produces films or videos through a permanent establishment in Canada.

The amount of the credit is 25% of the qualified corporation’s qualified labour expenditure for the year. Since the qualified labour expenditure cannot exceed 48% of the cost of the production, the credit is limited to 12% of the cost of production, net of government assistance. In order to qualify for the credit, the corporation must file form T1131 (copy attached) with its tax return for the year. The form includes questions to establish eligibility and the calculation to determine the amount of the credit. The corporation must also include a certificate from the Canadian Audio-Visual Certification Office (CAVCO) which is part of the Department of Canadian Heritage. It certifies that the production is a Canadian film or video production and contains estimates of the qualified labour expenditure used to calculate the credit. For additional details regarding the certification process, you should contact Mr. Robert Soucy, Chief at CAVCO directly. The mailing address is Canadian Audio-Visual Certification Office, Department of Canadian Heritage, Les Terrasses de la ChaudiEre, 15 Eddy Street, 6th Floor, Room 113, Hull, Quebec, K1A 0M5. Mr. Soucy’s phone number is (819) 997-6840.

Film or Video Production Services Tax Credit

If draft section 125.5 of the Income Tax Act is enacted as proposed, a new refundable income tax credit will be available to corporations involved in film or video production services provided in Canada. The credit would be equal to 11% of salary and wages paid to Canadian residents in respect of their services in Canada.

Eligible claimants would be corporations that carry on business in Canada and that own an “accredited production” or have contracted directly with a non-resident owner of the production. Contract payments by the claimant will also be eligible, to the extent that they are paid in respect of salaries and wages paid by Canadian contractors.

As described above, the owner will be required to obtain a certificate from CAVCO.

Producers will not be able to claim both the Canadian film or video production tax credit and this proposed credit in respect of the same production.

For additional details, you may want to obtain a copy of the Department of Finance’s News Release 97-096, dated October 29, 1997. This is available on their homepage at www.fin.gc.ca, or from the Distribution Centre at (613) 995-2855.

In accordance with paragraph 22 of Information Circular 70-6R3, the above comments are only general expressions of opinion on the application of the Income Tax Act to hypothetical situations, and as such should not be construed as advance income tax rulings, nor are they binding on the Department.

Yours truly,

Manager
Partnerships Section
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

Att.

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