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.
