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The Canadian flag is seen in front of the Peace Tower on Parliament Hill in Ottawa on October 2, 2017Justin Tang

The next federal budget will include short-term financial help for embattled media groups, in addition to opening the door to giving a non-profit status to news organizations to help them cope with dwindling advertising revenues, federal sources said.

Federal officials have been playing down the prospects of major help to media companies in the lead-up to Tuesday's budget. Federal officials, who spoke about the upcoming budget on the condition of anonymity, said there will be no measures designed to extract revenues from major foreign-based internet companies or any changes to the treatment of advertising under the Income Tax Act.

Still, federal officials said the government is looking to provide $10-million a year over five years to fund local journalism through an arms-length organization in a bid to preserve journalistic independence.

In particular, sources said that the government wants to promote journalism in local and community news organizations.

The upcoming federal strategy was first revealed in The Toronto Star and Montreal-based Le Devoir over the weekend, and later confirmed by The Globe and Mail.

A federal official said the federal government will be "exploring" the possibility of giving non-profit status to media organizations to help them raise revenues for their work. The timeline for the federal study of this proposal remains unclear.

In a report last year, the Public Policy Forum called for changes to Canada's charity laws "to allow non-profit news organizations producing civic-function journalism to qualify as recipients for support from philanthropic foundations and, in some specific cases, become charities themselves." However, the official added the government is not considering changes to Section 19 of the Income Tax Act, a key demand from media companies who want the government to provide an incentive to companies to place ads on Canadian rather than foreign-based internet sites.

Last month, Heritage Minister Mélanie Joly promised changes to the Canada Periodical Fund, which provides $75-million a year to magazines and non-daily newspapers.

"We are currently reviewing the Canada Periodical Fund to make sure it can support magazines and local papers to innovate, adapt and transition to digital," Ms. Joly said.

Ms. Joly has endured much criticism since unveiling a new cultural policy in September that did not directly address the crisis in the media industry. Still, she is promising that her new plan "will not bail out models that are no longer viable."

The issue of government support for the news industry has sparked intense debate in media and political circles in recent months, after a large number of outlets were shut down across the country. While some argue that media need a financial boost to survive the digital revolution, others worry how public funding would affect journalistic neutrality.

The Conservatives refused to comment on the possibility of federal funding to the media on Saturday, saying they are waiting for the official announcement in the budget.

Still, Conservative MP Tony Clement has said the market is simply evolving in a new direction, with no need for government intervention.

"All over the country, particularly in rural areas, online news services are popping up on YouTube and Facebook. I think the state of news in Canada is very good," he said.

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