Proposed federal tax credit legislation could disqualify Canadian producers from the indigenous federal tax credit if they sell their productions’ worldwide rights to a Canadian distributor.

The new rules being tabled by Revenue Canada in a bid to tighten up the tax-credit application process will make the already difficult task of securing production financing for cavco-certified productions even tougher, says Richard Paradis, president of the Canadian Association of Film Distributors and Exporters.

‘In an area that’s already complicated in terms of survival, we should be very careful about changing anything without significant consultation,’ says Paradis. ‘We’re not talking about the production of shoes or the lumber industry, we’re talking about the cultural sector.’

cavco as well as the cftpa have also expressed concern over the new rules, and the producers association has commissioned a study to show the impact that such changes would have on Canadian producers.

The proposed redefinition of the term ‘investor’ in the legislation for the Canadian film or video production tax credit could force producers to sell the worldwide rights to their cavco-qualified production to foreign distributors in order to qualify for the full federal tax credit, says Paradis.

The changes, which Revenue Canada hopes to have ready in time to be tabled as part of the next federal budget, have not gone forward as yet and appear to be at a standstill, says the cafde president. ‘We’re all hoping that even though it’s an initiative of Revenue Canada that they won’t be moving on it without having inter-ministerial and industry consultations,’ says Paradis.

In a letter to Rick Biscaro, a director of income tax ruling and interpretations at Revenue Canada, Paradis writes that based on the proposed new definition of investor, ‘Canadian distributors could not acquire worldwide distribution rights without disqualifying the productions for the ftc.’

Under the terms of the new legislation, a distributor could make a production ineligible for the tax credit by becoming an ‘investor’ as defined by the new rules.

The legislation reads that a Canadian distributor will be deemed an investor by ‘being granted by the producer the right to distribution or otherwise exploit the film or video in markets representing most or all of the exploitable value of the film by having acquired all ownership rights [an equity interest].’

As well, the legislation says that a distributor would be deemed an investor if ‘the producer transferred all of the exploitable value of the production for the foreseeable marketable life of the production,’ or through the acquisition of ‘other exploitable rights’ in addition to acquiring a right to distribute the production through a net-profit participation or ‘beneficial ownership of a percentage of the exploitation right of the entire production or an equity interest.’

‘With such a revised definition, it is difficult to understand how Canadian distributors would be able to export Canadian productions and also assist in completing their financing,’ says Paradis.

cafde’s letter goes on to question the timing of Revenue Canada’s decision to revise the tax-credit legislation in the wake of the federal government’s review of feature film policy.

‘Changing the rules regarding the ftc now, does not seem to fall in line with the objectives set out by the Minister and in our view should wait for the outcome of the Feature Film policy review expected in the Fall,’ says the cafde submission.

None of the industry associations has heard back from Revenue Canada.