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Ontario’s 2015 Budget Makes Changes to Cultural Tax Credits

The Ontario government released its 2015 Budget on April 23, 2015 – and it makes some significant changes to Ontario’s cultural tax credit regime, including the elimination of the sound recording tax credit. (Please note that the following text is excerpted from the Budget.)

Ontario Interactive Digital Media Tax Credit

The government proposes to amend the OIDMTC by focusing the credit on entertainment products and on educational products for children under the age of 12. Certain products would be specifically excluded, such as search engines, real estate databases, or news and public affairs. The government also proposes to strengthen the rule that excludes promotional products.  The changes would apply to expenditures incurred after April 23, 2015. However, products started before April 24, 2015, that would no longer be eligible for the credit would be eligible for relief in respect of expenditures incurred before April 24, 2015. Information about the proposed changes and examples of products that would be eligible for the credit will be provided in a bulletin.

The Province also proposes to improve the certification process by amending the requirement that all or substantially all (at least 90 per cent) of a product be developed in Ontario by the company claiming the credit. To provide certainty to applicants and reduce processing times for product certification, the requirement would be replaced by a rule based on the labour costs of the company developing the product. The proposed rule would require that 80 per cent of total labour costs for eligible products be attributable to qualifying wages and qualifying remuneration paid to individuals or corporations that carry on a personal services business. As well, 25 per cent of total labour costs for eligible products would berequired to be attributable to qualifying wages of employees of the qualifying corporation. The new rule would apply to all products, including those awaiting certification. However, the new rule would not apply to products that were certified before April 24, 2015.

Ontario Production Services Tax Credit (OPSTC)

Ontario proposes to reduce the OPSTC rate from 25 per cent to 21.5 per cent for qualifying production expenditures incurred after April 23, 2015.

Ontario also proposes to make the following changes to the OPSTC effective for taxation years that begin after April 23, 2015:

  • To ensure that salaries and wages paid to Ontario-based individuals for services provided in the Province represent more than a nominal amount of a corporation’s total eligible expenditures, a qualifying corporation’s Ontario labour expenditures (including labour under a service contract) would have to amount to at least 25 per cent of total expenditures.
  • Ontario also proposes to limit expenditures incurred by a qualifying corporation pursuant to contracts with non-arm’s-length parties to amounts that would have been eligible for the credit if the corporation had incurred the expenditures directly.

It is also proposed that the OPSTC be clarified to ensure that only expenditures incurred after the final script stage to the end of the post-production stage would be eligible for the credit. This amendment would apply to expenditures incurred after June 30, 2009.

Ontario Computer Animation and Special Effects (OCASE)

Ontario proposes to reduce the rate of the OCASE from 20 per cent to 18 per cent for expenditures incurred after April 23, 2015. In addition, it will be required that productions started after April 23, 2015, must also receive the OFTTC or the OPSTC in order to claim the OCASE.

Ontario Film and Television Tax Credit (OFTTC)

Ontario will pass a regulation to maintain the position that government equity is not assistance for OFTTC purposes.

Ontario Sound Recording Tax Credit

This credit is being eliminated altogether.  There is some limited grandfathering. An expenditure incurred after April 23, 2015, will only qualify for the credit if the eligible sound recording was commenced before April 23, 2015, the expenditure was incurred before May 1, 2016, and an Ontario Music Fund grant is not received in respect of the expenditure.

Ontario’s 2015 Budget Makes Changes to Cultural Tax Credits

Balancing the Budget …and Balancing Copyright

The Government of Canada’s Budget Plan for 2015 proposes various measures within the expected areas of tax relief, job creation and economic growth measures.  It also includes a very unexpected proposal to extend the copyright term for sound recordings, to benefit record labels and performers.  The Economic Action Plan puts this forward as follows:

Protection of Sound Recordings and Performances

Economic Action Plan 2015 proposes to amend the Copyright Act so that the term of protection of performances and sound recordings is extended from 50 years to 70 years following the date of the release of the sound recordings.

The mid-1960s were an exciting time in Canadian music, producing many iconic Canadian performers and recordings. While songwriters enjoy the benefits flowing from their copyright throughout their lives, some performers are starting to lose copyright protection for their early recordings and performances because copyright protection for song  recordings and performances following the first release of the sound recording is currently provided for only 50 years.

Economic Action Plan 2015 proposes to amend the Copyright Act to extend the term of protection of sound recordings and performances from 50 to 70 years following the first release of the sound recording. This will ensure that performers and record labels are fairly compensated for the use of their music for an additional 20 years.

The copyright proposal is surprising not only for its inclusion in a budget document, but also for its appearance so soon after the government heralded its delivery of the Copyright Modernization Act.  The 2012 Act was intended to balance and modernize Canada’s entire copyright regime, and was enacted following lengthy and detailed consultations with representatives of all affected stakeholders.

The 2012 Press Release, Harper Government Delivers on Commitment to Modernize Canada’s Copyright Laws,  includes the following statements:

“Our Government recognizes the critical role that modern copyright laws play in protecting and creating jobs in Canada’s digital economy,” said Minister Paradis. “We have delivered on our commitment to modernize Canada’s copyright legislation and strike the right balance between the needs of creators and users.”

“This is the most comprehensive effort to modernize our copyright laws in over a decade,” said Minister Moore. “It is widely supported by creator groups, consumer organizations and the businesses that drive Canada’s economy.”

A critical element of the Copyright Modernization Act is the requirement that Parliament revisit the Copyright Act every five years. This will serve as a reminder to current and future Parliaments and governments of the important role that modern and updated copyright laws play in our economy.

Indeed, section 92 of the Copyright Act calls for a statutory review of the Act every five years by a committee of the Senate, House of Commons, or both.  Section 92 does not preclude amendments between those statutory reviews.  However, the government and stakeholders alike have all recognized that copyright calls for balance.  Achieving that balance calls for careful review and input from all stakeholders.

A further 20 years of protection and fees for sound recordings has been welcomed by the music industry in Canada.  But will this proposed budgetary measure have the effect of making a real difference for the Canadian economy?  And on the copyright side, will it ”strike the right balance between the needs of creators and users”?

The Government of Canada has promised to balance the budget.  As the copyright term extension proposal moves forward, we look forward to further discussion on balanced copyright.

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Balancing the Budget …and Balancing Copyright

Handy-dandy Comparison Chart: Canadian Content, Production Services, Co-Ventures and Treaty Co-Productions

Everybody likes a “cheat sheet” which clearly summarizes the differences between various options – and now the Dentons Media and Entertainment practice team has prepared one to assist producers and their counsel in choosing between the various “structures” for producing film and television content in Canada: click here to access an online version of our Comparison of Canadian Content, Production Services, Co-Ventures and Treaty Co-Productions - there is also a .pdf version which can be downloaded from the same page.

Handy-dandy Comparison Chart: Canadian Content, Production Services, Co-Ventures and Treaty Co-Productions

Let’s Talk TV – CRTC Roadmap to “Maximize Viewer Choice”

The Canadian Radio-television and Telecommunications Commission (CRTC) has issued its fourth ”Let’s Talk TV” policy decision on the regulation of the Canadian television system.  Today’s decision is  A World of Choice – A roadmap to maximize choice for TV viewers and to foster a healthy, dynamic TV market.

The new roadmap affects the “basic” TV service Canadian subscribers receive, and adds new options for subscribers to choose additional services on a pick-and-pay or a la carte basis.

We wrote last week about the CRTC’s new regulatory measures geared to creating and showcasing Canadian content, set out in its policy decision The Way Forward – Creating Compelling and Diverse Canadian Programming.  Many of those decisions are geared to industry-based expenditure and exhibition requirements, and will have an indirect or gradual impact on viewers’ TV experience.  By comparison, today’s decisions take direct aim at viewer choice.

Skinny Basic

By March 2016, licensed broadcasting distribution undertakings (BDUs) must offer a small basic, entry-level service that includes:

  • local and regional Canadian over-the-air (OTA) stations;
  • the applicable provincial / territorial educational service;
  • all  mandatory distribution “9(1)(h)” television services - about 15 channels, depending on the market; and
  • the community channel and the proceedings of the provincial legislature (if offered).

The basic package may also include other Canadian OTA stations in markets where fewer than 10 local or regional stations are available; local radio stations; an out-of-province designated educational service, and a set of “US 4+1 signals” (NBC, CBS, ABC, Fox and PBS).  BDUs may not offer any other services in the basic package.

Moreover, the basic package must now be priced at or below $25.   The CRTC had de-regulated the basic package in 1997, stating at that time that deregulation represented “a fundamental change” for subscribers from a “20-year regulatory regime with Commission scrutiny” of basic service rates to a regime driven by market forces only.  With today’s decision, the Canadian regime is back  under Commission control, to further its policy of consumer control.

 Pick and Pay / A la carte 

In 2013, the Governor in Council (Cabinet) issued an Order in Council to the CRTC to report on how to maximize pick-and-pay in Canada.  In response, the CRTC observed that Canadians were getting “a more customized viewing experience” from online platforms, and considered how mandating increased choice and flexibility for television would potentially impact cable and satellite operators, broadcasters, and the production industry.

In today’s decision, the CRTC has taken the position that “it must take positive steps to bring about greater choice and flexibility in the Canadian television system”.

  • By March 2016, all licensed broadcast distributors (BDUs) must offer all discretionary services – meaning those not in the basic service – either on a pick-and-pay basis or in small, “reasonably priced” packages.  These packages may be set by the BDU or by the subscriber.
  • By December 2016, all licensed BDUs must offer all discretionary services on both a pick-and-pay basis and in small packages.

The CRTC noted the risk this “unbundling” poses to the Canadian system and the survival of some Canadian services; its greater concern was the risk it saw in “maintaining the status quo in a context of increased demand for more choice”.

Distribution of non-Canadian TV services

While the Commission entitled its decision ”A World of Choice”, the Commission has not changed the process for authorizing the entry of non-Canadian services.  The current List of non-programming services authorized for distribution (the List) includes a range of U.S. and other foreign services, including channels such as A&E, AMC, and MSNBC.   The Commission has authorized services on a case-by-case basis, permitting Canadian services to object to the addition of a new non-Canadian channel on the basis that it will unfairly overlap and compete with its own genre and nature of service.  The Commission will continue to authorize only those non-Canadian services that do not compete with Canadian specialty or pay services.

However, the CRTC is bringing the distribution of non-Canadian services in line with the rules set out in today’s policy regarding consumer choice.  As a condition of authorization – for existing services to remain on the List, and for new services applying to be added – the service must be offered on the basis of pick-and-pay and small packages.  The CRTC has said that “it expects non-Canadian services, as good corporate citizens, to continue to abide by the applicable rules …if they wish to continue to have their programming services available in Canada”.

An Expanded and Stricter Wholesale Code

In 2011, largely in response to what it considered to be imbalances in the wholesale marketplace brought about by “vertical integration” in the industry, the CRTC put in place a new regulatory framework for the commercial arrangements between BDUs, broadcasters, and digital media undertakings.  While the 2011 Code was originally drafted with certain mandatory requirements, the CRTC issued a correction to change various instances of “shall” to “should”.  Subsequently the CRTC applied elements of the Code to some licensees as a condition of licence.

Today, the CRTC not only effectively put the “shall” back into the Code for the industry as a whole, stating that it will be a regulatory requirement, not a guideline, for all licensed undertakings.  The CRTC also indicated that the Code will be expanded to include a number of additional prohibitions and mandatory requirements.  These are intended to ensure that the terms of wholesale agreements do not undermine or hinder choice and flexibility in the retail market.  New provisions, to enter into effect by September 2015, will target agreement terms that address packaging, service penetration and revenue guarantees, rate cards, and marketing.

Today’s decision was the 4th of 5 arising from the CRTC’s Let’s Talk TV Proceeding.  The final decision is expected next week, under the CRTC’s “Protect” banner:  consumer protections, BDU Code of Conduct, industry ombudsman, and accessibility issues.

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Let’s Talk TV – CRTC Roadmap to “Maximize Viewer Choice”

Let’s Talk TV – Delayering 50 years of Regulation in “the Age of Abundance”

In an important policy decision issued today, “The way forward – Creating compelling and diverse Canadian programming”, the CRTC announced ”significant changes to bring the CRTC’s regulations and Canadian television forward into the Age of Abundance”, where content is everywhere online and on TV.  Commission Chair Jean-Pierre Blais warned the audience for his speech today to the Canadian Club of Ottawa that the sheer length of the policy decision - 323 paragraphs - “illustrates how complex it is to delayer regulatory rules built over the past 50 years.”

Genre Exclusivity

The delayering includes eliminating the genre exclusivity that many Canadian services have relied on for years.  This was no surprise, as the CRTC had previously announced its intention to review the policy and asked for comment not only whether to eliminate it, but also the “earliest feasible timeframe” to do so.

By way of background, the Commission has in the past licensed must-carry “Category A” services – such as HGTV Canada, Bravo!, Sportsnet 360, and YTV – on a one-per-genre basis.  Genre exclusivity is intended to prevent ”head-to-head” competition for Category A services with each other, or with any other linear service in Canada.  Category A services have been insulated at least in part from competition with other Canadian services (may-carry Category B services, and Category C news and sports services).  The rules to authorize non-Canadian services for distribution in Canada have also prohibited “direct competition” with Canadian services as a condition of authorization.  The “must carry” and the genre protection privileges for Category A services were designed in large part to ensure that the services achieved enough revenues to meet their Cancon and related programming obligations, and thereby maximize their contribution to the creation of Canadian programming.

In a 2013 Discussion Paper commissioned by the CRTC, Broadcast consultant Peter Miller concluded that

Genre exclusivity cannot be considered ‘smart regulation’.  It has elements that make it internally contradicting, ambiguous, difficult to understand, costly to enforce, and it may possibly be just plain wrong-headed for today’s Canadian broadcast system.  [...] The CRTC is not required to ‘rely on market forces to the extent possible’ in its regulation and supervision of the Canadian broadcasting system. But in this instance there is much to be said for doing just that.

In today’s decision, the CRTC stated that in the “Age of Abundance”:

the genre exclusivity policy is no longer needed to ensure programming diversity between services and [the CRTC] is therefore eliminating this policy. [...] By eliminating this policy, the Commission is removing regulatory barriers so as to allow entry by new programming services, programming flexibility and greater domestic competition.

Genre exclusivity will be retained only in the conditions of licence (COLs) for the so-called 9(1)(h) services that benefit from a CRTC mandatory distribution order.  Such services include CBC News, The Weather Network, and the Aboriginal Peoples Television Network (APTN).  Limited genre protections also remain for mainstream sports services.

For all other Category A services, it remains to be seen how market forces of supply and demand will impact what has been a regulated and “exclusive” space.

The Commission has significantly “delayered” or revised regulatory requirements in a number of other areas, summarized below.

A.  “Leveling the playing field” for SVOD (subscription video-on-demand) services

A new category of ”hybrid” SVOD services will be exempt from licensing.  These hybrid services would be available both over the closed facilities of a broadcasting distribution undertaking (BDU), and also delivered and accessed over the Internet.  Such SVOD services would be able to offer exclusive content – just as exempt online-only services can do – as long as that content is available over the Internet to all Canadians without BDU subscriber authentication.

The CRTC has issued a call for comments on revisions to the VOD exemption order and standard conditions of licence for VOD services.  Comments are due April 27.

B.  Promotion and “discoverability” of Canadian programming

Promotional and marketing expenses for Canadian-made content

Independent broadcasters may use up to 10% of the amount they invest in programs for marketing and promotion, including payments to other broadcasters for paid promos.

Local Availabilities to Promote Canadian Programs

Local availabilities, or “local avails”, are the two minutes per hour of reserved advertising time in non-Canadian specialty channels.  Broadcast distributors in Canada contract with the non-Canadian channels to insert promotional materials in these avails.

Under the current regulatory regime, 75% of this time is made available to Canadian broadcasters to promote their services, to promote the community channel, and for unpaid Canadian PSAs.  25% has been available to broadcast distributors for information on and promotions for distributors’ services.

Going forward, at least 75% of local avails must be used to promote first-run, original Canadian programs.  The remaining 25% can be used to promote Canadian channels and broadcast distribution services.

C.  Funding models for Canadian-made programs

As exceptions to the CRTC’s standard Canadian program certification process – and subject to certain streamlined criteria – the CRTC is launching the following pilot projects:

Pilot project 1:  CRTC will recognize adaptations of best-selling novels by Canadian authors as Canadian live-action drama and comedy productions.

Pilot project 2:  CRTC will recognize Canadian live-action drama and comedy productions with a budget of at least $2 million per hour as Canadian productions.

D.  Terms of Trade

In a 2007 policy decision, the CRTC encouraged the development of terms of trade agreements between broadcasters and independent producers.  In the years following that decision, the CRTC imposed adherence to a terms of trade agreement with the Canadian Media Production Association (CMPA) as a condition of licence for large English-language TV groups, and for the CBC.  The CRTC has now – to the surprise of many in the industry – stated that it will eliminate those conditions of licence effective April 29, 2016, stating that “it is no longer necessary for the Commission to intervene in this relationship by requiring adherence to terms of trade agreements”.

E. Cancon quotas

In its policy shift from “quantity to quality”, the CRTC is eliminating the daytime quotas for Cancon for local TV stations; the quota for prime time remains at 50%.  For specialty channels, 35% of all programs broadcast overall must be made by Canadians.  This sweeps away varied levels from 15% to 85%, depending on the service, and does away with a specific quota for prime time.

F.  Viewer Information:  Set-top boxes

Industry stakeholders are to form a working group to develop an audience measurement system based on STB data.  The group is to report back to the CRTC by June 10 on its progress on technical standards, privacy protections, a governance structure, and cost-sharing.

Privacy protection issues have long been raised in this area as a key concern.  The collection and sharing of viewer data has also received recent media coverage in the context of user commands to Smart TVs.  STB data collection, use and disclosure proposals can be expected to be watched closely by the Office of the Privacy Commissioner of Canada.

G.  National news services

Existing and new Canadian news services will have to meet additional regulatory criteria.  Going forward, they must broadcast an annual average of 16 hours per day, 7 days per week, of original programming.  95% of their programming must be drawn from specific news-oriented categories. They must also operate a live broadcast facility, and have news bureaus in at least 3 other regions.

Next Steps

The Commission has called for comments on the proposed exemption order for hybrid VOD services, and will be amending regulations and conditions of licence in further proceedings, to implement today’s policy decisions.

The Commission will also be issuing decisions on pick-and-pay (a la carte) programming and related issues in the coming days.

 

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Let’s Talk TV – Delayering 50 years of Regulation in “the Age of Abundance”