The Ontario government announced Nov. 17th that it will introduce an 11% refundable tax credit on Ontario wages for production services companies producing projects which qualify for the new federal film or video production services tax credit. Legislation will be included in the next budget amending bill.

The 11% refundable provincial tax credit on qualifying labor expenditures, triggered retroactive to Nov. 1, will harmonize with the federal credit.

Eligible companies must have a permanent establishment in Ontario, meaning both foreign and domestic production companies can claim the provincial tax credit created for non-Canadian content production, as long as the production is based in the province and qualifies for the federal credit.

Although technically the Ontario credit is available for foreign-based and non-Canadian content productions, the announcement, in tandem with the federal credit, has left some Canadian producers wondering if it provides increased incentive for domestic prodcos to produce industrial product with the potential to meet Cancon guidelines, driving competitive impact on the financial case for making a ’10 out of 10′ Cancon package.

When combined with the recently announced federal production services tax credit of 11% on eligible labor or 5.5% of a production’s budget, the combined credits can mean a return of approximately 11% of an Ontario production’s total budget.

Unlike the domestic provincial credit of 20%, which requires eight Cancon points, no Cancon points are needed with the new credit.

One industry insider suggests that it increases the incentive for a foreign production company with a ‘permanent establishment’ in the province to look at producing a series with potential to end up on the already limited Canadian broadcaster shelf space devoted to Cancon productions as defined by the crtc regulations.

The six-point crtc definition of a Canadian program that is used by the broadcaster requires that the producer be Canadian and that at least one of the director or writer and at least one of the two leading performers must be Canadian. Key creative functions such as art department head, editor or composer can also count towards the crtc’s recognition of a Canadian program.

‘What gives one pause for thought is the situation where it’s done as a Canada/u.s. joint venture, which would get an sr [special recognition] number from the crtc which also qualifies it as Canadian content, even if there is a very active American producer partner,’ says John Robinson, vp legal and business affairs at Toronto’s Fireworks Entertainment.

‘It’s a much simpler test to qualify just for Canadian content than it is to qualify for cavco,’ says says Dufferin Gate and Temple Street Productions president Patrick Whitley. ‘So I’m sure that will happen. And yes, the shelves will fill up even further with Canadian content and that’s a problem. There’s more Canadian content on the shelves than there is airtime available.’

Service companies such as Toronto’s Dufferin Gate, which produces cable movies for u.s. cablenet Showtime, are welcoming the new legislation.

‘To an American producer, he’s getting at least 40 cents on his dollar, he’s getting 11% on tax credit, and that’s 50% on their dollar. Pretty nice,’ Whitley.

Though some have suggested that the broad-based legislation could inspire some u.s. productions to ‘skip over’ Toronto service providers like Dufferin, Power Pictures or Pebblehut, Whitley says that ‘it makes more sense to align with an established local company that knows the town, the people, the facilities and has the relationships. I don’t anticipate Showtime coming up here and setting up a business,’ he says, ‘I just expect a lot more work pouring across the border.’

Both Whitley and Robinson expect each of their companies to access the production tax credit at some point in the future.

Alex Raffe, ceo of the Ontario Film Development Corporation, agrees that the domestic industry, and more specifically the cftpa, will have concerns with the proposed provincial foreign tax credit, but blames the crtc’s point system and the broadcasters as the culprits.

‘The tax credit is not the place to try and fix it,’ says Raffe. ‘The crtc and the broadcasters need to take this legitimate issue up.’

In other proposed Ontario provincial legislation, enhancements to the existing domestic Ontario Film and Television Tax Credit include getting rid of the $3-million annual corporate tax credit limit, removing the $1.5-million per project limit, and expanding eligible genres to include variety, educational, magazine and instructional.

Meanwhile in Vancouver, the move by the Ontario government to introduce a provincial tax credit for foreign producers has taken the wind out of the sails of b.c. lobbyists who only just persuaded the b.c. government to offer a tax incentive in October.

Described as terrible news by Vancouver industry insiders, the new Ontario incentive is expected to be a big draw for television series and mows.

‘It means Ontario has a leg up on us again,’ says Neal Clarence, a partner at accounting firm Ellis Foster in Vancouver. ‘We should still provide for our regional bonuses, but we need to match [the Ontario credit] for the Lower Mainland.’

Legislation for the new b.c. tax credit is still to be written and is expected to come into effect April 1, 1998. In the draft policy, foreign producers can take advantage of the regional and job training incentives for projects that shoot outside the Greater Vancouver region and provide mentoring opportunities.

‘mows and series would rather shoot in Toronto than Spuzzum [to earn the provincial credits],’ says Clarence.

Michael Francis, chair of funding agency British Columbia Film, says the new Ontario tax credit for foreign producers will ‘certainly have a bearing’ on service work done in b.c.

‘We’ve worked for years to have an even playing field in Canada,’ he says. ‘Now it’s uneven again. It’s very disappointing and far from the spirit of fair trade among the provinces.’

‘We’re obviously looking at it,’ says Rick Stevens, spokesperson for the b.c. Ministry of Small Business, Tourism and Culture which oversees film policy. ‘We’ll be watching what effect it has on b.c.’

As for whether the draft b.c. tax credit has room in it for additional wording to match the Ontario credit, Stevens says: ‘That’s not contemplated at this time.’

With files from Ian Edwards in Vancouver.