Subsection 125.4(1) - Definitions
Assistance
Administrative Policy
5 February 1998 T.I. 972953
Discussion of circumstances in which loans to finance a production would be considered to be forgivable loans.
Qualified Corporation
See Also
Global Video Inc. v. The Queen, 2008 DTC 2621, 2005 TCC 742
An assessment of the Minister to deny the taxpayer credits on the basis that only about 25% of its total production costs were costs of eligible productions, was confirmed. In reaching this conclusion, Lamarre Proulx, J. stated (para. 28):
"The term used in the French version is 'principalement', and the Petit Robert dictionary defines the adjective 'principal' as that which is the most important, the first among several."
Administrative Policy
2012 Ruling 2012-0426581R3 -
Creditco is an indirect subsidiary of Parentco, which is a Canadian corporation. Creditco carries on business in one province, has non-capital losses and unutilized credits and is a qualified corporation (presumably as defined in s. 125.4(1).)
Creditco receives a loan from Parentco (funded by Parentco out of a daylight loan) and on-lends the proceeds in demand loans bearing interest at a market rate to various direct and indirect subsidiaries of Parentco (Aco through to Nco), who use the lent proceeds to subscribe for preferred shares of Creditco bearing a cumulative dividend equal to the interest rate on the demand loans plus a spread. These demand loans do not exceed the respective borrowing capacities of the borrowing subsidiaries. Creditco uses such share subscription proceeds to pay off the loan from Parentco. The arrangement will be unwound in X years.
Interest deduction ruling given re Aco to Nco; and ruling that these transactions will not cause Creditco to cease to be a qualified corporation.
Subsection 125.4(3) - Tax credit
Articles
Bacal, Jadd, Thivierge, "Raised the Curtain for Act II: Tax Shelter Reform and the New Film Tax Credit Regime", 1995 Canadian Tax Journal, Vol. 43, No. 6, p. 1965.
Subsection 125.4(4) - Exception
Administrative Policy
9 July 1998 T.I. 981718
In a situation where a loan is made to finance a Canadian film production, although the lender will be an investor it would be viewed as being able to deduct an amount in respect of the loan rather than in respect of the production, so that s. 125.4(4) would not apply unless the producer also transferred an equity interest in the production to the lender. The lender would be considered to have an equity interest if it was entitled to participation payments computed as a percentage of profits from the production with no cap, and there was clearly no connection between the estimated participation payments and the fair market value interest rate. Where time variable contingent insurance was provided by an arm's length non-resident insurer, the insurer would not be an investor for purposes of s. 125.4(4) because it would not be subject to tax in Canada
28 September 1998 T.I. 981975
An investment in shares of a Canadian producer will not normally cause a reduction in the amount of the credit available to the producer.