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Ontario “Grandfathers” Tax Credit Rate Changes

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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.]