1 September 1989 Income Tax Severed Letter AC58135 - Production Option Agreement

19(1)                                   5-8135
                                        C.R. Bowen
                                        (613) 957-2096

Re: Request for Interpretation of a Production Option Agreement

We are writing in reply to your letter of May 24, 1989, wherein you requested our opinion on whether a distribution agreement for a television series will constitute a production option agreement for the purpose of the transitional rules relating to class 10(w) property added by P.C. 1988 - 2795, SOR/89 - 27 dated December 27, 1988 (the "Transitional Rules").

Our understanding of the relevant facts of the situation is as follows:

Facts

1.

2.
                           24(1)

3.

4. The Distribution Agreement includes, inter alia, the following
terms:
                           24(1)24(1)24(1)

Your Request

You request our opinion on whether the terms contained in paragraph 4(vi) above (paragraphs 13(a) and (b) of the Distribution Agreement) would constitute a "production option agreement" as that term is referred to in the Transitional Rules for class 10(w). You refer to our letter dated September 15, 1988 in which we state that the term "production option agreement" 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 or 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.

Our Comments

We are unable to provide confirmation that the Distribution Agreement would constitute a "production option agreement" as that term is referred to in the Transitional Rules for class 10(w). As the Distribution Agreement relates to an actual completed transaction, the responsibility for determining the income tax consequences lies with the taxpayer's local District Office. In addition, we are unable to provide any further general comments on the term production option agreement, that would be of assistance,in view of the specific and unique wording of the Distribution Agreement.

Yours truly,

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch