discussion

paper out

A much-awaited discussion paper on the new tax credit was sent out to industry members May 19. Prepared by the Ministries of Heritage and Finance, the paper addresses eligibility criteria and recommendations are largely based on existing definitions for certified productions.

The four predominant areas for discussion are: what constitutes both an eligible company and an eligible production, cost factors, the depreciation rate for production companies, and the administration of the tax credit.

With the credit replacing the tax shelter, the accelerated depreciation rate and the capital cost deduction will no longer be available to investors, but the question remains whether production companies should be able to match costs against revenues from the productions by deducting Capital Cost Allowance.

The report recommends ‘it may be appropriate to retain the additional allowance up to film income, for films owned by the production company that produced the film.’

Regarding eligibility, the paper recommends that eligible companies should be Canadian-controlled and Canadian-owned and primarily in the production business.

As far as defining ownership, suggestions include following the criteria in the Income Tax Act whereby 75% of the board of directors must be Canadian and 75% of the company’s voting shares held by Canadians.

There is also the option of following the terms laid out in the Broadcasting Act for defining a Canadian company. In this category, the issue of self-dealing is addressed and the recommendation is that broadcaster-affiliated companies would not be eligible for productions that are headed for broadcast ‘as their initial market’ on the same company’s broadcast service.

The paper also proposes a new definition for a Canadian producer whereby full ownership of copyright and ‘control of initial commercial exploitation’ are part of the criteria.

Eligible productions could be any type of programming excluding news, industrials, promotion, game shows, pornography, commercials, telethons, live or taped broadcasts, and infomercials.

Distribution is also key to eligibility, and the paper suggests the requirement of a ‘bona fide Canadian-controlled distributor, broadcaster and production company’ should be essential as should the commercial exploitation of the production within two years of completion in Canada.

These issues are brought forward for discussion in order to ‘encourage Canadian productions to be seen in Canada, to strengthen the Canadian-owned distribution sector, particularly in the area of feature film and video distribution, and encourage greater Canadian producer control over production exploitation.’

Also recommended is that treaty coproductions be made eligible on condition that ‘the eligible base of the credit (is) limited to the Canadian portion of the budget.’

In terms of labor expenditures and other costs, the paper suggests following the criteria laid out in the Quebec tax credit to create similar (but not identical) practices. Payments for services but not for goods would be eligible as would salaries and wages paid ‘to an eligible individual, corporation or partnership.’

There are two contenders to administrate the credit, cavco and Telefilm Canada, although Telefilm is not mentioned in the paper except in a general reference to possible sharing of information between the administrator of the credit and funding agencies. A decision is not expected on this issue until June.

The ministries are calling for written comments by mid-June and a follow-up meeting with industry representatives will be held the third week of June. If the credit is up and running by September, sources say the industry would be happy, but some expect the credit will be delayed, and may be in operation as late as November 1995.