Reports on the death of film tax shelters in Canada have been greatly exaggerated.

In addition to the production services tax credit, foreign producers have recently begun accessing an additional 3.3% of non-labor-based production costs spent in Canada through the Income Tax Act.

‘It is based on non-labor expenditures, therefore complementing the existing production services tax credit and providing an additional source of revenue for non-Canadian content productions that qualify for these credits,’ says Jeff Rayman of Equicap Financial, one of the Canadian companies working with foreign producers to structure their productions to take advantage of the tax benefit.

Several American producers and high-profile Canadian entertainment lawyers also confirm that they are aware of this new tax shelter, but will not speak about it on the record. They say this particular tax benefit has been discovered only recently, in December 1998, but is already being used frequently by American producers shooting in Canada. They say the money is being accessed through a small window left open when the previous production service tax shelters were closed down in 1997.

The transaction structure has been endorsed by advance rulings from Revenue Canada on several occasions and is therefore legal under current tax policy.

According to several sources, information about the new tax benefit has been kept low profile due to the possibility that Revenue Canada would amend tax laws and shut it down because of the government’s hostility towards anything resembling a tax shelter.

They note that at a time when the production services tax credit is under attack and American actors are facing increased taxation, the loss of this new incentive would provide further fuel to drive American producers out of Canada. They say the additional financial benefit is a crucial part of keeping foreign production in Canada at a time when other countries are vying to attract this work and hundreds of millions of dollars and jobs in the Canadian service industry are at stake if this benefit is jeopardized.