Canada: Global Video Inc. Gets No Credit

Last Updated: July 5 2006
Article by Marsha Henry

To promote cultural programming in film, the Canadian government provides tax incentives to producers who make films with significant Canadian cultural content. Many producers rely on these tax incentives to make Canadian films they otherwise could not afford. However, to qualify for this incentive, producers must meet requirements. Producers falling short of the requirements could find themselves responsible for the entire production costs, like the unfortunate producer in Global Vrdo Inc. v. Ihe Queen.1

Section 125.4 of the Income Tax Act (Canada)2 gives film producers a refundable tax credit of 25% of qualified labour expenses3 incurred making a film. To be eligible, a film must be made by a qualified corporation and certified as a Canadian film or video production ("CFVP") by the Canadian Audio-Visual Certification Office ("CAVCO"). One of the tax credit's main objectives is to motivate Canadian producers to make films focussed on Canadian content. The credit also ensures that Canadian producers maintain a beneficial interest in and strong control over their productions.4 Certification as a Canadian production depends on the number of key positions Canadians occupy and at least 75% of the total production costs being paid to Canadians as wages or salary. Film certification is only the first hurdle for receiving the tax credit. The company producing the film must be a qualified corporation throughout the entire year the credit is being claimed for to maintain eligibility This second hurdle is the one that tripped up the taxpayer in Global.

The taxpayer in Global was a Canadian film production corporation established in 1996 that produced documentaries and advertising films. In September 2001, Global Video Inc.5 received a Canadian film production CFVP certificate for a production and began filming. Expecting the production to qualify for the CFVP tax credit, on its 2001 tax return, GVI claimed costs of $125,047 and a corresponding $15,006 tax credit, based on 25% of the labour costs associated with the production. GVI's total cost for all productions that year was $435,669. When the Minister denied GVI's CFVP tax credit claim finding that it was not a qualified corporation under the Act, GVI appealed to the Tax Court of Canada.

On appeal, the Minister argued that GVI did not primarily carry on a CFVP business as the Act requires. The Act defines a qualified corporation as:

. . . a corporation that is throughout the year a prescribed taxable Canadian corporation the activities of which in the year are primarily the carrying on through a permanent establishment (as defined by regulation) in Canada of a business that is a Canadian film or video production business.6

The Minister argued that because the CFVP certified production was GVI's only Canadian film or video production that year and the production's $125,047 cost accounted for less than 30% of the company's total production costs that year, GVI did not meet the CRA's general interpretation of "primarilyn to mean over 50%.7 Although the parties agreed with the Minister's interpretation of "primarily", they disagreed on the costs that the criteria should apply for GVI. The Minister had considered all sources of revenue GVI generated, while GVI argued that the total costs of only the certified production should be considered.

GVI urged that the Minister's restrictive application of subsection 125.4(1) would create inequitable results in that producers would need to incorporate a separate entity to produce certified productions and accomplish indirectly through a shell corporation what it could not do directly. GVI asserted that if it did not meet the requirements on a literal interpretation, it should be granted the credit on equitable grounds because its production was a CFVP.

Judge Lamarre Proulx disagreed with GVI, finding that the language of section 125.4 clearly allows the credit only if GVI primarily conducted a CFVP business the entire year for which the credit was claimed. Noting that when interpreting statutes courts must use the plain and ordinary meaning of the words in the statute where they are clear and unambiguous, the Court cited the Supreme Court of Canada's decision in Canada Trustco Mortgage Co. v. Canada as requiring:

Where the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretive process.

Where parliament has specified precisely what conditions must be satisfied to achieve a particular result, it is reasonable to assume that Parliament intended that taxpayer’s would rely on such provisions to achieve the result they prescribe.8

In Global, the statute's literal interpretation clearly supports the Minister's assessment and Tax Court's decision. Section 125.4 unequivocally states that the credit is based on a corporation's CFVP activities throughout the year and makes no mention of individual productions. Further, GVI produced no evidence to persuade the court to apply a purposive interpretation of the section. GVI would not likely have succeeded with this argument at any rate given that Technical Notes on the section indicate that the CFVP credit was introduced to replace a previous tax shelter that helped producers obtain funding. Parliament changed from a tax shelter to a tax credit system mainly to encourage producers to make long-term commitments to producing films in Canada instead of one-off productions. The provision was clearly worded to require corporations to satisfy the requirements for obtaining the credit and allow the Minister to monitor claims and limit the opportunities for abuse.

The decision in this case sends a clear warning to producers thinking about claiming this credit: make sure you fully meet section 125.4 requirements. In this case, the law means just what it says.


1. 2005 DTC 18 18 (TCC) (French Text).

2. R.S.C. 1985, c. 1 (5th Supp.) (the "Act"). All statutory references in this article are to the Act unless otherwise stated.

3. The credit claim is limited to 12% of the total production cost.

4. See Canadian Heritage website, Canadian Audio-Visual Certification Office: -02/ra-ar/prog_e.cfm#3. 1.1 (Accessed: April 17, 2006).

5. Hereinafter referred to as GVI.

6. Subsection 125.4(1).

7. See Guide to Form T1131 entitled, "Claiming a Canadian Film and Video Production Tax Credit."

8. 2005 DTC 5547.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2006 McMillan Binch Mendelsohn LLP

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions