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British Columbia Announces Changes to Film and TV Tax Credits

On May 2, 2016 the government of British Columbia announced significant changes to the province’s film, television and digital media tax credit programs. While the changes remain to be approved by the provincial legislature, they will involve the following:

  • the Basic Production Services tax credit (PTSC) will drop from 33% to 28% of eligible expenditures
  • the Digital Animation or Visual Effects tax credit (DAVE) will drop from 17.5% to 16% of eligible expenditures

Note that the Film Incentive British Columbia tax credit (the “Canadian content” credit) will not be altered by the changes.

The changes will become effective on September 30, 2016, thereby allowing a significant transition period.

For a full run-down of the specifics of the announced changes, see this detailed Dentons client alert.

British Columbia Announces Changes to Film and TV Tax Credits

Ottawa Launches Overhaul of Cultural Policy

The Department of Canadian Heritage has launched a review of the federal government’s cultural policy toolkit that could bring significant changes to the governance framework that underpins the broadcasting, media and cultural industries.

Announced this past weekend by Heritage Minister Mélanie Joly, the review is a response to the digital shift that is transforming the creative sector. The stated goal of the review is to ensure that Canadian content is positioned to succeed in an increasingly global marketplace which, as stakeholders well know, has been buffeted by the rapid evolution of new technologies that have changed the ways content is created and consumed.

Minister Joly made it clear in an interview with the Globe and Mail that each of the main governance levers – laws, policies, institutions and programs – will be evaluated. She told the Globe that she believes “the current model is broken, and we need to have a conversation to bring it up to date” and that “everything is on the table”.

Beyond a generally “digital approach”, it’s anyone’s guess as to what the policy outcomes of the review will be. The minister has indicated that she doesn’t want to go into consultations with preconceived notions of what they might yield, and has refused to speculate about eventual changes. However, the “drivers of change” articulated in the announcement of the review provide some sense of the likely focus:

  1. A fluid environment that blurs traditional categories like “creator” and “user”, “artists” and “audience”, and “professional” and “amateur”;
  2. The emergence of new players and intermediaries that have disrupted traditional business models;
  3. An increasingly open and interconnected world in which access to a global marketplace comes at the price of stiff competition in formerly local cultural markets; and
  4. Changes in consumer expectations driven by increased digital connectivity and mobility.

The consensus from the commentariat is that the review will be the most comprehensive re-evaluation of the industry since the Mulroney government revised the Broadcasting Act in 1991.

Content producers and other stakeholders should note that an online “pre-consultation questionnaire” can be accessed on the ministry’s website until May 20, 2016. The pre-consultation will help define the scope of the public consultation which will begin this summer and wrap up by the end of the year. An expert advisory group will be struck to shepherd the review, which is officially called Strengthening Canadian Content Creation, Discovery and Export in a Digital World.

Ottawa Launches Overhaul of Cultural Policy

Ontario “Grandfathers” Tax Credit Rate Changes

When Ontario announced its 2015 budget (for earlier Signal coverage see here), one particular proposed change was met with… well, let’s call it “concern” from the Ontario film and television production community: the reduction of the OPSTC and OCASE tax credits from 25% and 20% to 21.5% and 18%, respectively, was effective immediately (i.e., on April 23, 2015). In a production environment which prides itself on the stability of its tax credit regime, and given the long lead-times by which production scheduling occurs, a reduction with immediate effect would have had significant, in some cases even catastrophic, impact on film and TV projects (to say nothing of sending a cold wind blowing through the accountants’ offices where decisions about whether to film in Ontario are made). Following vigorous lobbying, however, the Ontario government has implemented a “grandfathering” mechanism which will apply the old rates to certain productions.

Grandfathering of OPSTC (Ontario Production Services Tax Credit)

The rate of 25% will apply to qualifying production expenditures  incurred after April 23, 2015 and before August 1, 2016 if the following criteria are satisfied:

  1. The production company must have entered into at least one qualifying written agreement in respect of a qualifying production expenditure.
  2. The qualifying written agreement must be entered into with a person at arm’s length with the production company.
  3. The qualifying written agreement must satisfy one of the following criteria: (a) an agreement for the services of a producer, a director, a key cast member, a production crew or a post-production crew; (b) an agreement in respect of a studio located in Ontario or a location in Ontario; or (c) the agreement “demonstrates, in the opinion of the Minister of Tourism, Culture and Sport, that the corporation has made a significant commitment to production activities in Ontario”.
  4. The production company must apply to the OMDC for a certificate in respect of the production.
  5. Principal photography or key animation must commence before August 1, 2015.

Grandfathering of OCASE (Ontario Computer Animation and Special Effects Tax Credit)

The rate of 20% will apply to qualifying production expenditures  incurred after April 23, 2015 and before August 1, 2016 if the following criteria are satisfied:

  1. The production company must have entered into at least one qualifying written agreement in respect of a qualifying production expenditure.
  2. The qualifying written agreement must be entered into with a person at arm’s length with the production company.
  3. The qualifying written agreement must satisfy one of the following criteria: (a) it is in respect of digital animation or digital visual effects for use in the eligible production; or (b) the agreement “demonstrates, in the opinion of the Minister of Tourism, Culture and Sport, that the corporation has made a significant commitment to production activities related to the eligible production in Ontario”.
  4. Before August 1, 2015, the corporation has notified the Ontario Media Development Corporation in writing of its intent to apply for a certificate in respect of the eligible production. (NB: note the difference here between OPSTC and OCASE on this point – for OPSTC the application itself must actually have been filed by August 1, 2015, but for OCASE there only must be written notice of intent to apply for a certificate)
  5. Before August 1, 2016, the corporation has applied to the Ontario Media Development Corporation for a certificate in respect of the eligible production.
  6. Principal photography or key animation must commence before August 1, 2015.

“Transitional Grant” Program

The government also announced that productions which commence principal photography/key animation on or after August 1, 2015 (i.e., too late to access the grandfathered rates noted above) but before December 1, 2015 (i.e., the last day on which principal/key can be commenced is November 30, 2015), and which otherwise meet the criteria identified above, will have access to “a separate transitional mechanism outside of the Taxation Act” – details to follow.

[The foregoing information is taken from an OMDC bulletin circulated on Monday, May 25, 2015, and available online here.]

Ontario “Grandfathers” Tax Credit Rate Changes

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

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