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Ottawa, October 29, 1997
1997-096

Draft Legislation Implementing New Film or Video Production Services Tax Credit Released

Related documents:

• Federal Government Assistance for Non-Canadian-Content Films.
• Draft Legislation - Adobe Acrobat format (revised file posted at 3:30 p.m. EST, October 30, 1997 - 45,495 bytes).

Finance Minister Paul Martin today released draft amendments to the Income Tax Act concerning the Film or Video Production Services Tax Credit announced on July 30, 1997 (Finance Canada News Release 97-063).

Minister Martin expressed his appreciation for the input from all sectors of the film industry in the development of the new refundable tax credit program. "The new tax credit will provide economic development assistance to film and video productions produced in Canada," said Mr. Martin. "This measure will enhance Canada as a location of choice for film and video productions employing talented Canadians, strengthen the industry and secure investment."

A refundable tax credit will be provided to production services corporations equal to 11% of the cost of their qualifying labour expenditures for services rendered in Canada. The program is expected to provide approximately $55 million per year in direct benefits to the industry, a level of support equivalent to that obtained under the previous production services limited partnership mechanism at the federal level.

"This program will stimulate job growth by encouraging Canadians as well as foreign-based film producers to employ the services of Canadians", said Mr. Martin. The Minister also stated that the Department of Canadian Heritage will be used to register eligible film and video productions to ensure an ease of both compliance and administration through the Canadian Audio-Visual Certification Office.

The Minister added that the new program is an efficient means of providing support by making the benefit available directly to the production services provider. The new provisions will be effective beginning November 1, 1997, to coincide with the elimination of film production services tax shelters. Those changes were announced in November 1996 (Finance Canada News Release 96-082), with transitional relief provided until October 31, 1997 (Finance Canada News Releases 96-099 and 97-063).

Copies of the draft amendments are available on the Department of Finance homepage at www.fin.gc.ca or from the Distribution Centre at (613) 995-2855.

___________________ 
For further information:

Department of Finance
Ed Short
Tax Legislation Division
(613) 996-0599

Federal Government Assistance for Non-Canadian-Content Films

On July 30, 1997, the federal government announced a new program in support of film and video production in Canada. Further to this announcement, the Minister of Finance issued a press release announcing details of the Film or Video Production Services Tax Credit on Wednesday, October 29, 1997. This legislation was drafted following consultations with Canadian and American film and television producers.

The Proposed Film or Video Production Services Credit

The proposed legislation has been designed to create a mechanism that is similar in most respects to the existing Canadian Film or Video Production Tax Credit. The new FVPSTC is a tax credit equal to 11% of salary and wages paid to Canadian residents for services in Canada. Eligible claimants are corporations that carry on business in Canada and that own an "accredited production" or have contracted directly with a non-resident owner of the production. Contract payments by the claimant will also be eligible, to the extent that they are paid in respect of salaries and wages paid by Canadian contractors.^[1] The owner will be required to obtain a certificate from the Canadian Audio-Visual Certification Office ("CAVCO"). Like the credit for Canadian content productions, the credit will be refundable. A special rule will prevent producers from being able to claim both the credit for Canadian content productions and the new credit.

The Rate

The 11% rate is set to approximate the amount of federal assistance that was previously being provided through tax shelters. All evidence indicates that the net benefit to foreign producers of the previously existing tax shelter was approximately 81/4% of total production costs. If one assumes a 2 to 1 cost sharing ratio between the federal and provincial tax bases, the federal share of this net benefit was 5.5%. The proposed credit, however, being a job-related incentive, is based on Canadian labour expenditures. Labour costs for films have been consistently in the range of 50% of total production costs. If one assumes complete take-up of Canadian labour, federal assistance based on labour expenses would, therefore, need to be 11% to replicate the federal government's share of the previously existing 81/4% tax shelter benefit based on total costs.

Provincial governments

The rate that has been suggested for the federal incentive closely matches the federal support under the previous tax shelter. It is, therefore, up to the provinces to decide whether they want to introduce measures to replace their portion of the assistance previously delivered under the tax shelter.

In this regard, the Province of British Columbia has recently announced its own refundable tax credit. The program requires 75% of production and post-production costs to be incurred in B.C. The applicable credits, listed below, are cumulative if all the criteria are met.

• A basic credit for B.C.-controlled corporations, at 20% of eligible labour expenditures on a Canadian-owned film;
• A regional credit for work outside of Vancouver, for B.C.-based, Canadian-owned corporations, at 12.5% of eligible labour expenditures (regardless of who owns the film); and
• A training credit for new workers, for B.C.-based, Canadian-owned corporations, at 3% of eligible labour expenditures (regardless of who owns the film).

Eligible labour expenditures are capped at 48% of the production cost, making the maximum B.C. credit 17% of the film cost for B.C.-controlled films, 71/2% for foreign or other Canadian-owned films. There are also project caps ($1.5 million for a television series, $0.5 million for a film), and a corporate cap ($3 million within a corporate group).

Example

The following table provides a comparison of the costs to governments and benefits to producers of the proposed tax credit versus the tax shelter program.

Benefits to producers - Costs to governments

Note:

[1] This is in contrast to the tax credit for Canadian content films, which is 25% of the eligible labour expenditures. Eligible labour expenditures cannot exceed 48% of the cost of the film, capping the benefit at 12% of the total cost of production. [Return]