Producers across the country responded very positively to proposed changes to the Canadian Film or Video Production Tax Credit announced Nov. 14 by John Manley, the minister of finance, and Sheila Copps, minister of Canadian heritage.

Highlights include an increase in the base rate for qualifying labor expenditures, from 48% to 60%, and a policy ruling that treats government equity, including profit-participation loans and investments, in the same manner as other forms of government assistance.

The government press release says ‘the new rules will generally apply to productions for which development commences on or after [Nov. 14].’

Funding from the Canadian Television Fund Licence Fee Program will continue to be exempt from treatment as government assistance and there will also be new procedures to simplify the process for administering the credit.

The increase in the base rate for qualifying labor effectively increases the maximum value of the federal content tax credit, as a percentage of the production budget, from 12% to 15%.

‘This is going to help a lot of producers, and it’s exactly what the industry needs right now. Making Canadian shows and films is tough in the current international markets. While financing is never easy, this is what the doctor ordered,’ says Guy Mayson, CFTPA acting president and CEO.

Nathalie Leduc, APFTQ director, financing sector, says the good news from Finance and Heritage is the culmination of three years of consultations between APFTQ, CFTPA and the two government departments.

Leduc says the government has given some indication there may be additional positive modifications to CFVTC, but not before the next federal budget, due in February.

The amendments include generous transitional period provisions, which should allow many 2003 productions to qualify under the new rules.

‘While foreign location shooting is important, we can’t have the domestic industry at a disadvantage. I think the government has helped fix that,’ says Mayson in reference to the 2003 budget, which increased the Production Services Tax Credit from 11% to 16%.

The CFVTC amendments also state:

* Labor expenditures for non-residents of Canada (other than Canadian citizens) will no longer be eligible for the credit

* The holding of an interest in a film or video production by a person other than the production corporation will no longer disqualify the production from eligibility for a tax credit, unless the production or one of the investors is associated with a tax shelter. However, the credit will continue to be available only with respect to production expenditures made by the production corporation.

In reference to the ‘investor rule,’ a backgrounder provided by both ministries adds, ‘It will not be required that only the production corporation hold an interest in the production. It is proposed that the so-called ‘investor rule’ in subsection 125.4(4) of the Income Tax Act (‘the Act’) disqualify a production for the CFVPTC only where the production or a person or partnership holding an interest in the production is a tax shelter. However, it remains a requirement under the Income Tax Regulations that the production corporation have ownership of copyright. This latter provision is currently under review by the Department of Canadian Heritage.’

Federal tax expenditure – the cost to government of the CFVTC program – was $160 million in ’02 and an estimated $170 million in ’03.

-www.fin.gc.ca