| 19(1) | File No. 5-6517 |
| T. Harris | |
| (613) 957-2099 |
September 15, 1989
Dear Sirs:
Re: Certified Productions - Draft Income Tax Regulations
This is in response to your letters of September 2 and 12, 1988 wherein you request our interpretation, on a priority basis, of the term "production option agreement" as used in clause 7(b) of the Draft Income Tax Regulations - Certified Productions (the "Draft Regulations") which were released on December 16, 1987.
You have provided us with a copy of a letter dated June 15, 1988 which you wrote to Mr. Len Farber of the Department of Finance concerning this matter, and a copy of his response thereto. In your letter to Mr. Len Farber you stated that you are "not sure where the term 'production option agreement' originated but it is not a term of art as used in the Canadian film production community. Since, as you indicate, the term "production option agreement" does not have a generally accepted meaning within the Canadian film industry, it is our view that the term should be interpreted in accordance with its apparent intent. In this regard, it is our understanding, based on our discussions with officials at the Department of Finance, that the transitional provisions contained in clause 7(b) of the Draft Regulations were only intended to apply to those option agreements where the option to proceed with the production of additional episodes of a series is held by the broadcaster or distributor. Our understanding of this intent has been confirmed in Mr. Faber's response to your June 15, 1988 letter. Accordingly, in our view, the term "production option agreement" as used in clause 7(b) of the Draft Regulations should be interpreted to mean an agreement pursuant to which the option to proceed with the production of additional episodes of a series is held by a licensed broadcaster of a bona fide film or tape distributor. It would not include an agreement whereby the option to produce a film or tape is held by the producer.
Due to the time-frame in which our response was requested and the limited resources available to us, we have not undertaken an in-depth study of this matter. Should you have a specific situation which you would like us to consider, we would, subject to the availability of resources, be prepared to consider this matter further provided that full details, including a copy of the agreement in question, are submitted for our review.
We trust these comments will be of assistance.
Yours truly,
B.W. DathDirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch