11 August 1989 Internal T.I. 74219 F - CCA for Certified Productions - Revision of IT-441

Subject: Interpretation Bulletin Project - Number 1492 CCA-Certified Productions - Revision of IT-441

We are writing in reply to your memorandum of August 3, 1989, wherein you requested our direction on whether the position set out in paragraph 16 of the above-noted draft bulletin should be revised or retained.

The second part of paragraph 16 of the draft bulletin contains the same wording as in the existing bulletin and is as follows:

     "There is no requirement that interest be paid by the investor on such an obligation.  However, if no interest is paid or if interest is paid at less than a commercial rate, the Department considers that the note - must be discounted to reflect its present value, and the discounted value must be used in the calculation of capital cost.  For example, if a film is financed by the payment of $200 in cash and the issuance of a non-interest bearing promissory note, the capital cost of the film would be $200 plus the present value of the note.  Generally, in determining the present value of the note, the amortization period will be the term of the note and the discount rate will be the current commercial rate (in respect of the particular term) that is applicable to the investor."

Our Comments

As we pointed out in our memorandum of April 17, 1989, the rulings that have been given that are contrary to the principle in this bulletin did not involve investments in film property.  We note that Justice has been able to distinguish the principle used in these rulings from that in the bulletin.

Therefore, as we are not aware of any opinions issued by the Department related to certified productions that are contrary to the position indicated above, we have no objection to leaving this paragraph in the bulletin.

B.W. DathDirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch