Kathy Johns is a member of the KNOWlaw Group of the Toronto law firm of McMillan Binch.

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In an attempt to breathe life into the Canadian film industry, Heritage Minister Sheila Copps announced a review of Canada’s feature film policy at Telefilm Canada’s recent 30th anniversary celebration.

Her message was clear. Despite frequent critical acclaim, Canadian feature films do not fare well in Canadian theaters. Underrepresented and under-promoted, Canadian feature films often struggle for commercial success, unlike many of their counterparts in the Canadian music and television industries. Innovative strategies are clearly needed in order to sustain and develop a strong indigenous feature film industry.

Copps poses many provocative questions in the policy discussion paper released on Feb. 4 which focuses on fundamental flaws in the financing, distribution, marketing and exhibition infrastructure of the Canadian film industry. But answers, or even a clear path for getting to answers, remains somewhat elusive.

Film policy & the law

From a legal point of view, a key question is how to make it happen. How will these issues be translated from a policy dream into legislative action? Although many of the proposed industry initiatives may simply require government funding, mandated policies and programs, several need actual legislative change.

Among the ideas floated in Copps’ policy discussion paper, six policies would likely require either revisions to existing legislation or the drafting of new legislation:

1. Providing an enhanced federal tax credit for feature films.

2. Implementing legislation which addresses the distribution of films in Canada by non-Canadians.

3. Modifying foreign investment guidelines regarding Canadian distributors.

4. Modifying foreign ownership guidelines regarding Canadian film production companies.

5. Implementing screen and shelf quotas for theaters and video stores.

6. Increasing broadcaster support.

How to make these happen will not be an easy task for Copps or for Parliament. However, if both have the will and the commitment to persevere, they can be done.

The federal tax credit

Remember that any modification in the language of the current refundable tax credit would mean a change to the federal Income Tax Act, and as a result, would first require the cooperation of Paul Martin and the Department of Finance.

Aside from this preliminary hurdle, it’s not clear what changes could be made to enhance the tax treatment of the Canadian film industry, since indigenous feature films already qualify for the current federal tax credit.

One possibility is that the language of the Tax Act could be expanded to provide that producers receive a credit on expenses incurred in the marketing and promotion of theatrical feature films. However, these types of expenditures are likely to be far more difficult to isolate and define in a way that would satisfy Revenue Canada than the labor costs which currently qualify.

Distribution legislation

Previous Canadian governments have tried to introduce this type of legislation without much success. Generally focusing on redirecting film revenues from non-Canadian to Canadian distributors, these past legislative proposals have eventually stalled or failed due to intense pressure from the American studios.

There is clearly some concern that a new distribution-type law would suffer a similar fate. Given the current trade liberalization environment, we can expect such legislation to be a significant trade irritant.

Foreign investment guidelines

As it currently stands, the Investment Canada Act restricts the acquisition of Canadian distributors by foreign interests and restricts the entry of new foreign-owned distributors into the Canadian market place.

One of the suggestions in Copps’ paper is that the current foreign investment guidelines should be tightened to build a stronger homegrown distribution industry. It’s somewhat hard to see how this proposal would work since most major American studios first became involved in the Canadian film market before foreign investment restrictions were introduced.

However, there is also the possibility that foreign ownership and investment restrictions could be loosened or even replaced in return for a substantial monetary commitment to Canadian feature film production.

Any proposal to change current foreign investment legislation must be viewed in light of the federal government’s decision last year refusing Holland-based PolyGram Filmed Entertainment the right to distribute non-proprietary films in Canada. The European Union decided to take Canada to the World Trade Organization, claiming that Ottawa’s film distribution and cultural policies violate Canada’s international trade obligations. They said the policy unfairly prohibits European film companies from accessing the Canadian market, while certain ‘grandfathered’ Hollywood studios are exempt.

The current policy proposals will have to be assessed in light of what happens at the wto. If the wto turns thumbs-down on Ottawa’s position, this idea will face a tough uphill battle.

Foreign ownership of film producers

Copps outlines two different suggestions regarding foreign ownership of Canadian film production companies.

The proposals are to either toughen the Canadian ownership and control test for Canadian production companies under the Investment Canada Act, or to loosen the test even further, gambling that this would attract additional financial resources into the industry.

Adopting a more rigorous test may in fact be counterproductive in that it could limit the ability of Canadian film producers to access foreign capital.

Either suggestion requires opening up the Investment Canada Act for parliamentary debate on the cultural protections currently built into the Act. Given the views of some of Canada’s opposition parties, the government may not want to risk such an open discussion of these critical issues.

Theater and video store quotas

According to Canadian constitutional law, both the federal government and the provincial governments are restricted to certain areas in which they can introduce new laws.

It’s somewhat uncertain how the constitution restricts either level of government in attempting to introduce this sort of initiative. It’s also important to realize that because the introduction of regulatory screen and shelf quotas for theaters and video stores would require the passage of entirely new legislation, and possibly the creation of a new regulatory body like the crtc, it would inevitably be a time-consuming and controversial initiative.

Broadcast licences

The suggestion that broadcast licences might be modified to encourage Canadian broadcasters to dedicate more financial resources and broadcasting time to feature films is potentially problematic because any such modification is at the discretion of the crtc, subject to certain little-used policy direction powers of the federal government.

Broadcasters will be reluctant to invest serious money into feature films because of the length of time which passes before such films become available to them and because the subject matter may not always fit conventional television acquisition and scheduling preferences.

Further, the resources of pay-television services and pay-per-view services are limited by their subscriber base, which has not grown nearly as quickly as previously predicted.

Yet another tax?

Although not specifically mentioned in her discussion paper, the concept of a levy or surcharge on blank tapes, video rentals and movie tickets has been floated by various industry figures as another way to fund Canadian feature films.

The legislative challenge for this idea is how it can be done most efficiently, who can do it, and who will bear the cost.

One possibility is to either modify the federal Excise Tax Act to provide for a specific, separate tax on movie tickets and video rentals or to establish a special gst rate for tapes, videos and movie tickets. This would mean that movie theater and video store operators responsible for collecting this new type of tax would have to incur some initial costs in adapting their sales system software.

Expect it to cause havoc down East, where Maritimers have gone through the pain of a Harmonized Tax and won’t want to see it rescrambled.

To avoid these problems, it may be that the tax collection obligation would occur at an earlier stage in the production-distribution-exhibition/sales chain.

As a model for a new federal tax initiative, some people are looking to the dedicated tax program that is currently being discussed in Quebec, where the revenues collected from a proposed surcharge on movie tickets, video purchases and rentals would go directly to local film production.

The future

Since most of the above suggestions raise thorny public policy and legislative issues, it’s no wonder that previous governmental attempts to support the Canadian feature film industry, stretching all the way back to the 1960s, have ultimately foundered.

In this current debate over the future of indigenous film, the question remains whether a bright new idea will be injected into the mix or, whether the government will be obligated to fall back on its traditional supply-side approach to the production and promotion of Canadian feature films.

Although Canadian filmmakers face formidable odds in bringing their work to movie audiences, Copps’ policy proposal paper clearly sets the wheel of change in motion. The challenge will be to keep it moving.

(This article contains general comments only. It is not intended to be exhaustive and should not be considered as advice on any particular situation.)