Ontario Sound Recording Tax Credit
Please note that the 2015 Ontario Budget announced that the OSRTC will be phased out. A qualifying corporation may claim an OSRTC for eligible sound recordings that commenced before April 23, 2015. However, a tax credit can only be claimed on eligible expenditures incurred before May 1, 2016 and the qualifying corporation cannot receive an amount from the Ontario Music Fund in respect of the expenditures claimed under OSRTC.
Please note: Effective April 1, 2017 there is a new administration fee structure for tax credits which will offset the cost of administering the program. However, the OSRTC administration fee is not affected.
As previously announced, effective January 1, 2017 there is an additional filing fee of $100 applied to applications for the first Certificates of Eligibility for the recording received more than 24 months after the first year-end of the claim. As well, there is a fee of $100 for each Amended Certificate requested.
What Is It?
The Ontario Sound Recording Tax Credit (OSRTC) is a refundable tax credit based upon eligible production and marketing costs incurred by a qualifying corporation with respect to an eligible Canadian sound recording.
How Much Is the Tax Credit?
The OSRTC is calculated as 20% of qualifying expenditures incurred by an eligible sound recording company before May 1, 2016, with respect to an eligible Canadian sound recording by an emerging Canadian artist or group that was commenced before April 23, 2015.
Who Is Eligible?
An eligible sound recording company is a Canadian-controlled corporation having carried on a sound recording business in Ontario for at least 12 months as a corporation or, prior to incorporation, as a sole proprietor or partnership. An eligible sound recording company must earn more than 50% of its taxable income in Ontario for the preceding taxation year, and more than 50% of the company’s business must be related to sound recording activities. An eligible sound recording company must have implemented a distribution plan (a plan to market the recording) for at least one sound recording in the preceding taxation year. An eligible sound recording company must enter into contracts with its artists and must bear the financial risks associated with its business or be related to a company that bears the risks.
What Kind of Expenditures Are Eligible?
Qualifying expenditures include recording production costs, such as artists’ royalties, musicians’ session fees, graphics, digital scanning, programming and testing; production costs for music videos that are directed by a qualified Canadian, or made at a production facility in Ontario; and direct marketing expenditures including consultants’ fees and certain costs to launch the recording. Touring, performing manufacturing and distribution costs are not eligible. 100% of qualifying expenditures incurred primarily in Ontario are eligible; 50% of expenditures incurred outside Ontario for marketing and music video production are eligible. Qualifying expenditures must be incurred in the 24-month period beginning when the first qualifying expenditure is incurred. Government assistance received by the sound recording company in respect of the qualifying expenditures reduces the qualifying expenditures. Funding from FACTOR is not considered government assistance.
Expenditures incurred on or after April 24, 2015 on a recording may only be claimed under the OSRTC if:
- The recording was commenced before April 23, 2015.
- The expenditure was incurred before May 1, 2016.
- The applicant did not receive an amount from the Ontario Music Fund in respect of the expenditure.
What Types of Sound Recordings Are Eligible?
A sound recording is eligible if the music, or the lyrics (if any) on the recording are performed by an emerging Canadian artist; and if:
- the music was primarily composed by qualified Canadians; or the lyrics were primarily written by qualified Canadians; or the recording production activities took place in Ontario (a qualified Canadian is a Canadian citizen or permanent resident ordinarily resident in Canada at the time of composition or writing);
- the total playing time is at least 15 minutes;
- the eligible sound recording company produced the recording and has exclusive contractual control of the master tape for at least 5 years after completion;
- the eligible sound recording company has a distribution plan (a plan to market the recording);
- the sound recording is not primarily spoken word or wildlife or nature sounds, nor for instructional use or advertising or promotional purposes; and
- the sound recording is not capable of inciting hatred against an identifiable group; the sound recording does not contain undue exploitation of sex and crime, horror, cruelty or violence.
Who Is an Emerging Canadian Artist?
An individual is an emerging Canadian artist if, at the time they signed the recording contract, and when the master recording was made, they are a Canadian citizen or permanent resident ordinarily resident in Canada; and if they have not had a gold recording as an individual or as part of a group in the USA and either Canada, UK, France, Germany, Asia or Latin America. A group is an emerging Canadian group if at least 75% of its members are emerging Canadian artists.
How Is the Credit Administered?
The OSRTC is jointly administered by Ontario Creates - an agency of the Ministry of Tourism, Culture and Sport - and the Canada Revenue Agency. Application is made to Ontario Creates for a certificate of eligibility, which the qualifying corporation files with the Canada Revenue Agency together with its tax return in order to claim the OSRTC. The amount of the credit, net of any Ontario taxes owing, will be paid to the qualifying corporation. If the qualifying corporation does not owe any taxes, the full amount will be paid out.
* PLEASE NOTE: CANADA REVENUE AGENCY (CRA) ADMINISTERS BOTH FEDERAL AND ONTARIO CORPORATE TAXES. THE CRA IS THE FIRST POINT OF CONTACT FOR ALL CORPORATE TAX ENQUIRIES (1 800 959-5525).
Note: This sheet is a general guide and may not be relied upon in order to determine eligibility or the amount of an anticipated credit. Please consult the OSRTC legislation and regulation for further details.