Vol. 149, No. 6 — March 25, 2015
SOR/2015-61 March 13, 2015
INCOME TAX ACT
Regulations Amending the Income Tax Regulations (Film and Video Productions, 2014)
P.C. 2015-307 March 12, 2015
His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 221 (see footnote a) of the Income Tax Act (see footnote b), makes the annexed Regulations Amending the Income Tax Regulations (Film and Video Productions, 2014).
REGULATIONS AMENDING THE INCOME TAX REGULATIONS (FILM AND VIDEO PRODUCTIONS, 2014)
1. (1) The portion of subparagraph (a)(iii) of the definition “excluded production” in subsection 1106(1) of the Income Tax Regulations (see footnote 1) before clause (B) is replaced by the following:
- (iii) if the production is not a treaty co- production, a person (other than the particular corporation or a prescribed person)
- (A) is a copyright owner of the production for any commercial exploitation purposes at any time during the 25-year period that begins at the earliest time after the production was completed that it is commercially exploitable, or
(2) Subsection 1106(1) of the Regulations is amended by adding the following in alphabetical order:
« titulaire du droit d’auteur »
“copyright owner”, of a film or video production, at any time means
- (a) the maker, as defined in section 2 of the Copyright Act, who at that time owns copyright, in relation to the production, within the meaning of section 3 of that Act; or
- (b) a person to whom that copyright has been assigned, under an assignment described in section 13 of the Copyright Act, either wholly or partially, by the maker or by another owner to whom this paragraph applied before the assignment.
(3) Paragraphs 1106(10)(e) and (f) of the Regulations are replaced by the following:
- (e) in respect of a film or video production, a non-resident person that does not carry on a business in Canada through a permanent establishment in Canada and whose interest (or, for civil law, right) in the production is acquired to comply with the certification requirements of a treaty co-production twinning arrangement;
- (f) a person
- (i) to which paragraph 149(1)(f) of the Act applies,
- (ii) that has a fund that is used to finance Canadian film or video productions, all or substantially all of which financing is provided by way of a direct ownership interest (or, for civil law, right) in those productions, and
- (iii) that, after 1996, has received donations only from persons described in any of paragraphs (a) to (e);
- (g) a prescribed taxable Canadian corporation;
- (h) an individual who is a Canadian; and
- (i) a partnership, each member of which is described in any of paragraphs (a) to (h).
(4) Subsection 1106(11) of the Regulations is replaced by the following:
(11) For the purpose of the definition “assistance” in subsection 125.4(1) of the Act, “prescribed amount” means an amount paid or payable to a taxpayer under the License Fee Program of the Canadian Television Fund or as a licence-fee top-up contribution from the Canada Media Fund.
(12) For the purpose of the definition “copyright owner” in subsection (1),
- (a) the right of a person to share in the revenues from or proceeds of disposition of an interest or, for civil law, a right, in a film or video production is not, in and by itself, an interest or right as a copyright owner of the production; and
- (b) for greater certainty, a grant of an exclusive licence, within the meaning assigned by the Copyright Act, is not an assignment of a copyright.
COMING INTO FORCE
2. (1) Subsections 1(1) to (3) and subsection 1106(12) of the Regulations, as enacted by subsection 1(4), are deemed to have come into force on November 13, 2014. However, these subsections do not apply in respect of a prescribed taxable Canadian corporation’s film or video production if before that day
- (a) the Minister of Canadian Heritage has revoked a certificate or refused to issue a certificate of completion in respect of the production; or
- (b) the Minister of National Revenue has assessed a return of income of the corporation on the basis that the production is not a Canadian film or video production and that assessment’s basis is not vacated or varied on or after that particular day.
(2) Subsection 1106(11) of the Regulations, as enacted by subsection 1(4), is deemed to have come into force on April 1, 2010.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
The Canadian Film or Video Production Tax Credit (CFVPTC) is an incentive program administered through the tax system and is aimed at assisting Canadian film producers in creating films or video productions with high Canadian cultural content. The credit is equal to 25% of the eligible labour costs of a Canadian-controlled production corporation for films that have high Canadian content.
The Minister of Canadian Heritage is responsible for certifying whether a film or video production meets certain prescribed Canadian-content rules. While most of the rules concerning the CFVPTC are contained in section 125.4 of the Income Tax Act, section 1106 of the Income Tax Regulations (the Regulations) generally concerns the cultural content and ownership criteria to be applied by the Minister of Canadian Heritage in determining whether a production may be certified as a “Canadian film or video production” that is eligible for the CFVPTC. The modifications to the Regulations are related to the criteria concerning ownership.
The Regulations used to require a production corporation to be the exclusive copyright owner of a film or video production for a 25-year period after the production is completed in order to be eligible for the CFVPTC. An eligible third-party investor, known as a “prescribed person,” may also have an interest in the copyright.
Previously there was uncertainty in the Regulations as to who is considered to be an owner of copyright, as well as what constitutes an interest in copyright, such as when a third-party is entitled to share in the revenues of a production. This made it difficult for producers to structure their licensing and financing arrangements. Therefore, it became necessary to clarify the meanings of copyright and ownership of copyright.
As well, while one purpose of the CFVPTC is to support Canadian producers by ensuring that they remain long-term beneficiaries of their products, investment by certain types of third-party investors is considered supportive of the industry. Therefore, it was proposed to expand the list of prescribed persons in order to capture these third-party investors.
The amendments simplify and clarify the rules regarding the types of investors allowed for the purposes of the CFVPTC. They were prepublished in the Canada Gazette, Part I, on October 4, 2014.
The amendments to the Regulations
- define “copyright owner” for the purposes of the CFVPTC with reference to terminology in the Copyright Act (e.g. the Copyright Act contains terms such as “maker,” “copyright” and “assignment of copyright” that have particular meanings);
- clarify that the right of a person to share in the revenues of a film or video production is not in and of itself an interest or a right held by a copyright owner;
- simplify the definition “excluded production” by rewording the existing provision to eliminate a triple negative and facilitate the reading of the Regulations;
- expand the list of prescribed persons to include Canadian individuals, Canadian taxable corporations, and partnerships of prescribed persons; and
- harmonize the amended regulatory provisions to take into account bijuralism in Canada.
The amendments also address a housekeeping matter. On April 1, 2010, the “Canadian Television Fund” became the “Canada Media Fund,” and some of the programs available through the new Canada Media Fund were also renamed. The Regulations are amended to take into account these changes.
The amendments to the Regulations are not expected to impose new administrative costs on business. Therefore, the “One-for-One” Rule does not apply.
Small business lens
The amendments to the Regulations are not expected to impose new administrative or compliance costs on business. Therefore, the small business lens does not apply.
These amendments were prepublished in the Canada Gazette, Part I on October 4, 2014. No substantive comments were received following their publication. Two stakeholders provided minor comments. One comment was from the Canadian Media Production Association, which indicated its support for the amendments. The other comment was from a tax publisher and referred to the use of the term “permanent establishment” and whether it should be defined for the purpose of the provision. This term is already defined in section 8201 of the Regulations for the purpose of this film tax credit regime by reference to subsection 125.4(1) of the Income Tax Act. Therefore, these amendments are unchanged from those that were published in the Canada Gazette, Part I, on October 4, 2014.
The amendments clarify the CFVPTC in order to simplify the credit and ensure that tax assistance is appropriately targeted.
In this regard, the amendments permit a producer to allow investors who are not prescribed persons (e.g. distributors, non-Canadian broadcasters, most private investors) to participate in the profits generated from exploiting the production without necessarily being divested of copyright. Therefore, the production might still be eligible for the CFVPTC.
The amendments also provide greater investment flexibility, and are anticipated to have a positive impact by allowing certain types of private investors (e.g. Canadian individuals, Canadian taxable corporations, and partnerships of prescribed persons) to invest in Canadian film or video productions. Expanding the list of prescribed persons allows Canadian film producers that already qualify for the credit to attract additional financing from third-party investors that are considered supportive of the industry without being disqualified for the credit.
The amendments also simplify the definition “excluded production” by rewording the existing provision to eliminate a triple negative and facilitate the reading of the Regulations.
There is no anticipated cost, either to the government or for taxpayers, as the amendments simply clarify the rules relating to the existing CFVPTC.
Implementation, enforcement and service standards
Most of the amendments apply since November 13, 2014. The amendment concerning the Canada Media Fund since April 1, 2010.
The Regulations, as amended, are subject to the existing reporting and compliance mechanisms available to the Minister of National Revenue under the Income Tax Act. These mechanisms allow the Minister of National Revenue to assess and reassess tax payable, conduct audits and seize relevant records and documents.
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