As promised, federal Minister of Finance Paul Martin has announced amendments to the tax-shelter initiatives which got pulled along with Capital Cost Allowance deductions in the Feb. 22 budget. The relief for the film and television industries comes in the form of two grandfathering clauses.

First, and most substantial, is that certain projects for which the prospectus was filed before the budget are rescued for 1994. Also, those projects which had an offering memorandum in circulation by Feb. 22 will carry on as usual for 1994. The terms of the amendments specify that these projects must have their funds raised before Jan. 1, 1995 and expended in accordance with the memorandum by the end of ’94 (or, in the case of certified Canadian productions, before March 1, 1995).

Second, the new rules for the negative adjusted cost base (acb) of a partner are deferred for five years of the partnership ending after 1994, and convertible debt is still accessible until the 1995 fiscal year if all or most of the property is a film production, if principal photography starts up before 1995, if funds are raised and expended before 1995, and if interest is acquired before 1995.

Michael Spier, vice-president of Paragon Financial Investments, says: ‘In this measure, the broker would have to recognize that income in five years to be eligible and the `gain’ that an investor would make from the tax shelter now would not be as positive.’ In comparison, Paragon has a 15-year buyback clause.

The Canadian Film and Television Production Association estimated that at least $400 million of Canadian production financing would be suspended by the budget measures. With the March 30 implementation of relief provisions, this booty, for the most part, is safe.

While the cftpa welcomes the relief provisions, saying they ‘should go a long way to solving the financing problems for 1994 productions,’ the long term is still in question.

‘We will now plunge into creating a new system.’ says cftpa president Sandra Macdonald.

Comments Jeff Rayman of Alliance Equicap: ‘I think the government has clearly indicated that it supports the industry. They have allowed producers to finish projects in an orderly fashion and at the same time they have given everyone enough time to prepare for 1995.’

Spier agrees: ‘The government is allowing us to continue to operate as we had planned at the outset of the year. For this year, it’s no problem. For future years, it affects us like it does everyone else. Now we have to sit down with our lawyers and accountants and develop new shelters.’

‘I think it is sad that we are not going to create attraction for investors for our industry,’ says Daniele Suissa of 3 Themes International. ‘Every time we start, we stop.’ She adds that ‘the changes will impact the smaller companies more than the bigger ones.’

There is some speculation that the terms for this year may be carried beyond the original expiry date, but Spier isn’t optimistic. ‘One of the things (the government) was concerned with was that the grandfathering rules wouldn’t be abusive. They wanted a firm cut-off,’ he says.

Daniel Iron, head of business and legal affairs at Rhombus, calls the measures ‘an enormous relief to us. We have completed principal photography on two tv productions which contemplated tax shelters in their financing (Lost in the Stars, a performance feature on the music of Kurt Weill, and The Planets, a skating and dance special). Without those funds, it would have been devastating for us.’

Iron says tax shelters are not a mainstay of the company’s financing, adding that ‘these two productions were the first ones that were really worthwhile doing a tax shelter for.’