Application Policy

Number: FAS 2008-02

Date: March 26, 2008

Subject: Interest Expenses – CPTC


This policy paper cancels and replaces Application Policy 2007-01 on the same topic. It is meant to inform stakeholders in the film industry about the approach adopted by the Film Advisory Services regarding interest expenses.


This approach is applied by Canada Revenue Agency (CRA) auditors in the Film Services Units (FSUs) when auditing the production cost limit for purposes of the Canadian Film or Video Production Tax Credit (CPTC). It may also be applied to claims for provincial tax credits that are administered by the CRA.

FAS approach

CPTC claimants may capitalize the cost of borrowing money (i.e., interest paid pursuant to a legal obligation, and expenses such as financing and annual fees) to the capital cost of a Canadian Film or Video Production (CFVP), provided an election is made according to subsection 21(1) of the Income Tax Act. Furthermore, they may continue to capitalize these amounts in subsequent years according to subsection 21(3) of the Act. 

The impact on the CPTC will be to increase the production cost limit either in the current or in future years, which in turn will result in additional tax credits on previously unused labour expenditures.

Applicable conditions

The following conditions must also be met to qualify as a cost of production:

  • The expenditure must be reasonably attributable to the CFVP. This is a question of fact and the onus is on the producer of the qualified corporation to demonstrate this fact.
  • The amount of the expenditure must be reasonable in the circumstances.
  • The production cost must be calculated using well-accepted business principles, which include but are not limited to the formal codification found in generally accepted accounting principles.
  • Expenditures in a particular year must have been paid in the year or incurred by the end of the year in question (i.e., it must represent a legal liability in the year). An estimate that is not a legal liability in a particular year, even if paid in a later period, cannot be recognized in the (earlier) particular year.

Original signed by
Pierre Mercier
Film Advisory Services
Small and Medium Enterprises Directorate

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