The promise of a new 12% federal refundable income tax credit, welcomed with open arms by the film and tv industries last February, is now fraught with uncertainty and at the center of what threatens to be a crisis for production across the country.

Producers are likening the situation to five years ago when the Quebec credit was introduced without a transition period, which in part led to a crash in local production and interrupted at least one-and-a-half years of production financing.

The problem is twofold: the regulations, expected in August, have been delayed from one month to the next, preventing producers from making commitments on future projects. Also, the anticipated transition period (of about five months) in which producers could use either the existing tax shelter or the new credit has been lost to the delays.

Canadian Film and Television Production Association president Elizabeth McDonald says, ‘It’s a very serious matter and producers are extremely upset at this point.’

In late November, cftpa members sent a letter to Finance Minister Paul Martin calling the potential loss of a transition period ‘critical,’ saying ‘projects will collapse’ if the required time to shift systems is not granted and emphasizing the ‘vital importance’ of the issue.

The factor of the unknown has meant holding off on many projects, including some for Paragon Entertainment president Richard Borchiver. He says the 10% to 12% granted by the tax shelter system ‘can basically be the only money we will see for a long time in cash’ on Cancon material.

Borchiver, who estimates about 8% of the company’s overall revenues are shelter-related, says if there is no transition period, it will mean ‘four months of production which will not happen’ in the industry.

The Quebec referendum was in part to blame for the delay, and now the clock continues to tick as broadcasters and producers battle over the issue of broadcast access to the credit.

According to Norm Bacal, partner at Heenan Blaikie, the tax department of the Ministry of Finance met with a group of lawyers late last month and said the regulations are finalized and in the hands of Martin, who is now struggling with this very issue.

Although it was not used often, the shelter was available to broadcasters, who are lobbying for the same provisions under the new system. Producers are calling for self-dealing policies for broadcasters.

McDonald says the trend toward consolidation combined with broadcaster access to the credit will have a negative impact on producers, the broadcasting system and viewers.

Michael MacMillan, ceo of Atlantis Communications, a production and broadcasting company, says, ‘The only thing we need to be careful of here is when a broadcaster and a producer who are related are selling to themselves. We need some kind of safeguard to ensure fair dealing is going on and others who don’t have the privilege of a broadcast licence aren’t excluded. Otherwise (broadcast access) is terrific.’

Michael McCabe, president of the Canadian Association of Broadcasters, calls producers’ objections to broadcast access ‘a red herring’ aimed at keeping the tax credit to themselves and shutting out broadcasters. ‘They really ought to be co-operating to try to increase production in this country, not just try to play dog in the manger.

‘As far as self-dealing is concerned,’ he says, ‘we had a meeting with producers, lawyers, members of Finance and Heritage, and the independent industry was challenged to bring forward any problem of self-dealing (under the shelter). They couldn’t.’

McCabe is confident the producers won’t win. ‘Fortunately, the minister (of finance) said there will be no discrimination.’

One lawyer, who asked not to be named, predicts that if broadcasters make use of the credit, the cost to the government will exceed the original analysis, which in turn could mean either a reduction of the 12% or restrictive measures such as caps will be implemented.

While the cftpa has chosen not to publicly lobby on the broadcast issue, producers in Quebec are letting their feelings be known. A spokesman for the apftq, representing Quebec producers, says it would be ‘inappropriate and discriminatory’ if broadcasters and their production affiliates gain access to the federal tax-credit program.

The producers are attacking the cab’s call for access to the federal tax credit program by pointing to the many advantages broadcasters have over producers.

At the limit, the apftq says it is willing to abide by a cftpa formulation stating a program produced by a production company with a majority interest in a broadcast outlet, and broadcast first on the affiliated broadcast outlet, should not be eligible for the tax credit.

In Quebec, where there are only two commercial networks – the TVA Network and Television Quatre Saisons, the apftq says it’s worried the first-window rule, if applied, will lead to a situation where a tqs production affiliate could be contracted to produce programs for tva, or vice versa, and gain access to the tax credit.

The concern is enhanced, the producers say, in that tqs and tva are both large integrated broadcasting and production companies with interests in technical services, cable distribution, video retail outlets and, in the near future, pay-per-view outlets.

The apftq says tva already produces many of its programs in-house, and access to the tax credit will only accelerate this trend to the immediate detriment of producers.

Draft regulations for eligibility released in the spring recommended broadcaster-affiliated companies should not be eligible for productions that are headed for broadcast ‘as their initial market’ on the same company’s broadcast service.

Individual producers who spoke to Playback deferred to the apftq position, saying access for broadcasters would be ‘a disaster’ for producers.

In b.c., producers are battling proposed cavco guidelines applicable to the credit, which are in place to ensure foreign service productions are ineligible.

In a letter to the federal tax committee, b.c. producers question the definition of a ‘bona fide Canadian company,’ ask for the inclusion of foreign partners ‘in the creative and financial approval process,’ and suggest producers be granted the right to seek ‘the best possible distribution arrangement in the universe.’

Also on the list of requests is amending the fixed status of remuneration and saying producers, in seeking foreign distribution agreements, ‘should be able to deal with whoever they want in whichever territories.’

McCabe calls using the existing shelter or the pending ritc for anything but Canadian productions a ‘shameful’ exercise. ‘(Producers) try to pass off American service productions and they are the only people that ever abused it.’

Rumor in the industry is the government is likely to extend the Capital Cost Allowance for anywhere from three months to one year.