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Page 2 of 3 If more than one equity investor is attached to a production, the agreement with the broadcaster will stipulate in what position the broadcaster will recoup its equity investment vis a vis the other investors (for instance, the broadcaster may recoup on an equal basis with other broadcaster investors and funding agencies, but before the producer). PrivateUntil fairly recently, a production would not qualify for the Canadian Film or Video Production Tax Credit the Federal Content Credit , and certain provincial tax credits, where an investor, other than a prescribed person, who was not actively engaged on a regular basis in the production of Canadian film or video productions, could deduct an amount for the production in computing its income for any taxation year. This so-called “investor rule”, which effectively prohibited participation by private investors, ensured that no tax shelter was permitted for a Canadian film or video production. It also prohibited even non-shelter private investment in certified productions. Draft amendments to the federal Income Tax Act introduced in 2003 amended the rules so that a production is ineligible for the tax credit only if the interest of an investor in the production, or a person or partnership that has an interest in the production, is a tax shelter. However, the Federal Content Credit continues to be available only for production expenditures made by the production corporation (not by the investor).The Income Tax Act still requires that the applicant corporation, a related corporation and/or one or more “prescribed persons” must own 100% of the copyright in the production. This means that while investors may now have a profit participation in the production, investors cannot acquire a direct ownership interest in the copyright of the production. If, for example, the applicant corporation transferred more than 50% of the profits of the production to an investor (such as a private individual), the Canada Revenue Agency (CRA) and/or the Canadian Audio-Visual Certification Office (CAVCO) could reduce or even deny the Federal Content Credit on the basis that the applicant corporation had transferred “beneficial ownership” of the production to such investor and that it retained only the bare “legal title” to the copyright in the production. On the other hand, if an investor received, for example, 10% of the profits of the production, it is unlikely that CRA or CAVCO would reduce or deny the Federal Content Credit in such circumstances. Continued... |
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