Proposed changes to the rules governing the administration of the Canadian Film or Video Production Tax Credit have been raising eyebrows across the production community. And for good reason.

Modifications to the guidelines administered by CAVCO could suddenly disqualify dozens of qualified productions from the CPTC – which covers 25% of eligible salaries, or up to 15% of the production budget – and threatens to undermine the fragile recovery that appears to be underway in film and TV in this country.

The rule changes stem from a November 2003 federal announcement that boosted the base rate for qualifying labor expenditures to 60% from 48%. At the time, Canadian Heritage undertook a review of the guidelines as to what should be eligible for the credit.

The 2003 changes were announced to spark the stagnating production sector. Ironically, the proposed guideline revisions threaten what appears to be a reinvigorated sector just as it begins picking up steam.

Among the proposed changes, CAVCO is eyeing the rules around copyright ownership of certified productions. The new rules would disallow equity participation by broadcasters or distributors in a production eligible for the credit. In other words, the CBC, which pitched in $12 million toward English-language arts and entertainment programming between 2002 and 2004 in the form of equity to help producers complete financing of projects, would, by doing so in the future, make these productions ineligible for the CPTC.

An investment by any Canadian broadcaster covering the last 15% of a budget would be offset by the loss of the CPTC’s 15% despite being 100% Canadian projects.

So what’s a producer to do? Well why not look to foreign markets instead? Well, for one thing, any form of non-Canadian investment also makes a production ineligible for the credit. The copyright to a Canadian production must be entirely owned by a Canadian. So, a 25% stake by a foreign equity financier in exchange for 25% of the copyright – even if the production is fully controlled by the Canadian producer, is shot entirely in Canada, and employs only Canadians – can’t access the CPTC.

The changes also target the control of foreign distribution by stating that a Canadian must own ‘a beneficial interest in the exploitation of the production in non-Canadian markets… and in no event shall it be less than 25% of net profits in each of any major foreign territory.’ The guidelines also insist that no meaningful development take place outside Canada.

This is dangerous and naive thinking.

Opposition from every corner

The guidelines fail to acknowledge the scarcity of resources in Canada and the global scale of the film and TV market.

To no one’s surprise, opposition to the changes comes from every corner of the industry, including most guilds and unions, and the national and regional associations representing producers and broadcasters.

In its response, the CFTPA does not mince its words: ‘The proposed guidelines are, with few exceptions, more restrictive than those under which the production community has been operating for the last decade. The government’s original goal in implementing the CPTC was to provide assistance to the Canadian production community in growing this industry. The policies relating to the CPTC should, therefore, recognize the current difficulties and challenges facing Canadian film and television producers. In today’s environment, where the financing of films and television productions has become increasingly difficult, and in the face of a marked increase in worldwide competition for film and television production activity and dollars, our Canadian producers must count on their domestic government and its industry agencies to actively support their efforts to remain competitive.’

Indeed, producers must be free to access some levels of foreign investment, even if it means giving up some copyright ownership and not risk losing critical financing that promises to employ Canadian crews and talent. Investment must be encouraged, not impeded.

At this late date, Ottawa has yet to commit to the renewal of its $100-million contribution to the Canadian Television Fund. Meanwhile, the inclination toward equity investment and development financing in such provinces as Ontario and B.C. has long fallen by the wayside.

CAVCO proposes to make ineligible any project that tries to offset budget shortfalls through various means of alternative equity investments.

The feds should either contribute toward a system that is entirely self-sufficient through increased public investment in the film and TV sector or loosen its Cancon requirements and take the handcuffs off

CAVCO proposes, instead, to tighten the cuffs and in so doing, break producers’ wrists.

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This issue marks the farewell of Playback publisher Marcelle Wallace, who is easily one of the most respected and well-liked individuals around these parts. Everyone at Playback wishes her the best in her new adventure as part of the CanWest Media sales team.

Mars, you will be impossible to replace.