Corporate and
Commodity Taxation Branch
Tax Legislation Bulletin Number 01-2, March 2001
1. Introduction
This bulletin replaces bulletin 98-3 issued in June 1998.
In 1997, the Ontario Book Publishing Tax Credit ("OBPTC") was introduced to encourage Ontario book publishing companies to support first-time Canadian authors. The 2000 Ontario Budget enhanced the OBPTC.
Prior to the enhancements announced in the 2000 Budget, the OBPTC was equal to 30 per cent of the qualifying expenditures incurred in publishing the first literary work of a Canadian author, up to a maximum tax credit of $10,000 per publication.
Effective May 3, 2000, the 2000 Ontario Budget extended the OBPTC to the first three literary works in an eligible category of writing by an eligible Canadian author and increased the maximum tax credit for each publication from $10,000 to $30,000.
The rules discussed in this bulletin are contained in section 43.7 of the Corporations Tax Act ("CTA") and in Part IX of Regulation 183 under the CTA. This bulletin is provided as a guide for taxpayers. It is not intended as a substitute for the legislation. For precise details, the reader should consult the legislation.
2. Calculation of Tax Credit
The OBPTC is refundable and is calculated in respect of each eligible literary work, up to a maximum tax credit per literary work. The maximum tax credit for an eligible literary work is increased from $10,000 to $30,000 for qualifying expenditures incurred after May 2, 2000.
Qualifying expenditures first incurred after May 2, 2000
Where qualifying expenditures for an eligible literary work are first incurred after May 2, 2000, the OBPTC for that literary work for a taxation year is equal to the lesser of:
- 30 per cent of the qualifying expenditures incurred
before the end of the taxation year that have not been used to claim an OBPTC
in a previous taxation year for the eligible literary work; and
- $30,000 minus any OBPTC claimed in a previous taxation year for the eligible literary work.
Qualifying expenditures incurred before and after May 2, 2000
Where qualifying expenditures for an eligible literary work are incurred before and after May 2, 2000, the OBPTC calculation is modified to reflect the increase in the maximum credit from $10,000 to $30,000 for each eligible literary work, effective for qualifying expenditures incurred after May 2, 2000. In these situations, the OBPTC for the literary work for a taxation year is calculated using the following formula:
A + B, where
A = the lesser of (i) 30 per cent
of the qualifying expenditures incurred before May 3, 2000, that have not been
used to claim an OBPTC in a previous taxation year for the eligible literary
work, and (ii) $10,000 minus any OBPTC claimed in a previous taxation year for
the eligible literary work, and
B = the lesser of (i) 30 per cent of
the qualifying expenditures incurred after May 2, 2000 for the literary work,
and (ii) $30,000 minus the sum of the amount in "A" and OBPTC claimed in a
previous taxation year for the eligible literary work.
Example 1
PublishCo publishes the book work of an eligible Canadian author in the taxation year ended December 31, 2000. Prior to May 3, 2000, PublishCo incurs $40,000 in qualifying expenditures for the book. After May 2, 2000, PublishCo incurs a further $60,000 in qualifying expenditures in respect of that book. The OBPTC for PublishCo's 2000 taxation year would be calculated as follows:
| Tax credit
prior to May 3, 2000 |
|
| A = $40,000 x 30% (maximum: $10,000) | $10,000 |
| Tax credit
after May 2, 2000 |
|
| B = $60,000 x 30% (maximum: $30,000 - $10,000(A)) |
$18,000 |
| PublishCo's OBPTC for its 2000 taxation year | $28,000 |
Example 2
PublishCo publishes the first book of an eligible Canadian author in the taxation year ended December 31, 2000. Prior to May 3, 2000, PublishCo incurs $20,000 qualifying expenditures for that book, followed by a further $100,000 in qualifying expenditures after May 2, 2000. The OBPTC would be calculated as follows:
| Tax credit
prior to May 3, 2000 |
|
| A = $20,000 x 30% (maximum: $10,000) | $6,000 |
| Tax credit
after May 2, 2000 |
|
| B = $100,000 x 30% (maximum: $30,000 - $6,000(A)) |
$24,000 |
| PublishCo's OBPTC for its 2000 taxation year | $30,000 |
Example 3
PublishCo publishes the second book of a Canadian author in the taxation year ended December 31, 2000. Prior to May 3, 2000, PublishCo incurs $40,000 in qualifying expenditures for that book, followed by an additional $60,000 in qualifying expenditures after May 2, 2000. The OBPTC would be calculated as follows:
| Tax credit
prior to May 3, 2000 |
|
| A = $0 | $0* |
| Tax credit
after May 2, 2000 |
|
| B = $60,000 x 30% (Maximum: $30,000 - $0(A)) |
$18,000 |
| PublishCo's OBPTC for its 2000 taxation year | $18,000 |
*Note Prior to May 3, 2000, the OBPTC was available only in respect of the first literary work in an eligible category of writing by a Canadian author. See section 4. Eligible Canadian Author.
3. Eligible Ontario Book Publishing Company
3.1 General
A corporation is an eligible Ontario book publishing company for a taxation year if throughout the taxation year,
- the corporation is a Canadian-controlled corporation,
as determined under sections 26 to 28 of the Investment Canada Act
(Canada),
- the corporation carries on a book publishing business
primarily through a permanent establishment in Ontario, and
- the corporation is not exempt from income tax under the CTA.
3.2 Book Publishing Business
A corporation is considered to carry on a book publishing business if the corporation meets the following conditions:
- it selects, edits and publishes books;
- it enters into contractual agreements with authors and
copyright holders for the publishing of literary works;
- it offers for sale into the retail market the books it
publishes;
- it owns its own inventory or is related to a
Canadian-controlled corporation that owns the inventory, or has a contractual
arrangement for inventory repurchase or acceptance for book returns; and
- it bears the financial risks associated with the book publishing business or is related to a Canadian-controlled corporation that bears such financial risks.
3.3 Business Primarily Carried on through a Permanent Establishment in Ontario
A business is considered to be carried out primarily through a permanent establishment in Ontario if the corporation allocates more than 50 per cent of its taxable income to Ontario in the taxation year the tax credit is being claimed.
4. Eligible Canadian Author
An eligible Canadian author of an eligible literary work is an individual who:
- when he or she and an Ontario book publishing company
enter into a contract to publish the literary work, is either a Canadian
citizen or a landed immigrant ordinarily residing in Canada, and
- in the case of qualifying expenditures incurred prior
to May 3, 2000, did not author a previously published literary work in an
eligible category of writing for which the tax credit is being claimed, or
- in the case of qualifying expenditures incurred after May 2, 2000, has not published more than two literary works in an eligible category of writing for which the tax credit is being claimed.
An essay or article published in an anthology is not counted as a publication of the author.
5. Eligible Literary Work
5.1 General
A literary work is an eligible literary work if:
- it is written by an eligible Canadian author, or if it
is written by more than one author, at least 90 per cent of the material is
written by eligible Canadian authors;
- 90 per cent or more of the literary work is new
material that has not been previously published;
- it belongs to an eligible category of writing;
- where it contains pictures, the ratio of the amount of
text to pictures is at least 65 per cent (except in the case of children's
books);
- it is at least 48 printed pages in length (except in
the case of children's books) and is bound as a paperback, or a hardback;
and
- it is not a prescribed ineligible publication.
5.2 Eligible Category of Writing
There are five eligible categories of writing:
- Fiction is a book-length work of the
imagination in prose including novels and book-length collections of short
stories or novellas.
- Nonfiction is a work of prose based
on factual information including history, travel, social issues or current
events; or is an exposition of ideas including works of philosophy, social and
art criticism or political enquiry.
Nonfiction educational texts, published for use in educational institutions, such as schools and universities, are eligible as long as they meet the other eligibility requirements.
A book-length play or a radio or television drama published in book form will be considered under nonfiction.
- Poetry is a book-length work of
imagination written in rhyme, blank verse, or another recognized poetic form,
either as a book-length poem or a book-length collection of poems.
- A biography is a book-length work in
prose based on fact, telling the story of one (or more) person's life (or
lives), including an autobiography (the author's own story told as a factual
account), or a memoir (a selective but factual retelling of events).
- Children's books are books designed for readers under 16 years of age. Children's books may be less than 48 pages and may be illustrated titles. Young adult titles, specifically designed for readers aged 9 to 18 will be considered children's books.
5.3 Ineligible Publications
A literary work is an ineligible publication if it is:
- a publication that is a translation of a previously
published literary work;
- a publication that is a calendar, agenda, almanac,
colouring book or comic;
- a publication that is an instructional book or other
printed material that forms part of a children's product which is primarily a
toy or play kit;
- a publication that is a university or college
dissertation, a conference paper or report, a government report or a catalogue
of exhibitions;
- a publication that is an instruction book or manual
(such as a computer manual, guidebook, arts and crafts book, recipe book or
musical performance method book);
- a publication containing primarily maps;
- a publication that is used primarily as learning
material (such as a workbook, kit, activity manual or educational game);
- a publication that is primarily a reference book (such
as a directory, index compilation, compilation of statutes, rule book or
bibliography);
- a publication that is primarily musical notation;
- a publication that is a combination of any of the
publications described in (a) to (i) above;
- a publication where the identity of the author or
authors is unknown to the publisher of the publication;
- a publication where the pages are typewritten,
individually photocopied, mimeographed or handwritten;
- a publication that is capable of inciting hatred
against an identifiable group, including a section of the public distinguished
by colour, race, religion, sex, sexual orientation or ethnic origin;
- a publication the dominant characteristic of which is
the undue exploitation of sex or of sex and one or more of crime, horror,
cruelty or violence; or
- a publication for which public financial support would
be contrary to public policy.
6. Qualifying Expenditures
Qualifying expenditures include 100 per cent of pre-press costs and promotional costs and 50 per cent of production costs paid by the book publishing company in respect of the publishing of an eligible literary work. These qualified expenditures are reduced by any government assistance received or expected to be received in respect of the literary work at the time the corporation is required to deliver its corporation tax return for the taxation year.
6.1 Pre-press Costs
Pre-press costs are costs incurred before printing and include:
- non-refundable author advances; and
- costs related to publishing of the literary work that
are carried out primarily in Ontario, including
- salaries and wages paid to employees in editing,
design and project management,
- payments for freelance editing, design and
research, and
- payments for art work, development of prototypes, set-up and typesetting.
- salaries and wages paid to employees in editing,
design and project management,
6.2 Production Costs
Production costs are costs incurred for printing, binding and assembling activities that are carried out primarily in Ontario.
6.3 Promotional Costs
Promotional costs are marketing costs incurred within 12 months after the publication date of the literary work and include:
- costs for promotional tours of the eligible Canadian
author, except that only 50 per cent of the expenditures for meals and
entertainment are qualifying expenditures,
- salaries and wages paid to employees engaged in
marketing the literary work; and
- payments for promoting and marketing the literary work, e.g., advertising.
6.4 Activities Carried Out Primarily in Ontario
Whether an activity is carried out primarily in Ontario is a question of fact. If more than 50 per cent of the costs of an activity are incurred in Ontario, the activity is generally considered to be carried out primarily in Ontario. However, where the printing of a literary work is done outside of Ontario and the paper is supplied from an Ontario company, this activity is not considered to be carried out primarily in Ontario even if the paper cost is more than 50 per cent of the total cost of the print job.
7. Other Exclusions
A corporation may not claim the OBPTC in respect of a literary work if any of the following criteria exists:
- The publication date is before May 7, 1997.
- The corporation publishes the literary work on
consignment or at the expense of another person.
- The author of the literary work or a person related to
the author, directly or indirectly funds, or guarantees the payment of, any
part of the cost of publishing or marketing the literary work.
- The person who is, or is related to, the subject of the
literary work, directly or indirectly funds, or guarantees the payment of, any
part of the cost of publishing or marketing the literary work.
- The corporation is controlled by the author of the
literary work, or by a person related to the author.
- The corporation publishes the literary work in an
edition of less than 500 copies.
- The published literary work is not assigned an
International Standard Book Number.
- The corporation does not offer the literary work for
sale through an established distributor.
- The corporation published fewer than two books in the
immediately preceding taxation year.
- The literary work is published in a book that also
contains one or more other literary works and less than 90 per cent of the
material in the book is written by eligible Canadian authors.
8. Certification
To claim the OBPTC, an eligible book publishing company must apply to the Ministry of Tourism, Culture and Recreation to have the literary work certified and must include the certificate with the tax return for the taxation year in which the credit is being claimed. For information regarding the certification, please contact:
Ontario Book Publishers Tax Credit
Ontario Media
Development Corporation
Suite 300, North Tower
175 Bloor Street
East
Toronto, Ontario M4W 3R8
Attention: Edward Yanofsky
(416)
642-6656
Fax 416 314-7876
For further information please contact:
Ministry of Revenue
Corporations Tax Branch
Tax
Advisory
33 King Street West
Oshawa, Ontario L1H 8H5
Tel. (905)
433-6513
Fax 905 433-6747
