MONTREAL — Quebec now offers film producers one of the best tax incentives in North America. All production costs, not just labor expenses, are now eligible for a 25% tax credit.

‘I think it’s extraordinary. It’s really big. The phones have started to ring,’ says Michel Trudel, who co-owns the equipment rental company Locations Michel Trudel with Mel Hoppenheim of Quebec’s La Cité du Cinéma studio. ‘This is what we needed to get the Americans to come again.’

The provincial government said Friday it’s increasing the tax credit for foreign filming from 25% of labor expenses to 25% of all spending. Because labor expenses usually comprise half of a film or TV production’s budget, this measure could potentially double the tax-credit rebate foreign producers currently benefit from, explains Montreal’s film commissioner Daniel Bissonnette.

‘If they spend $100 locally, whether it’s on construction materials or renting cars, they will get 25 % back,’ says Bissonnette.

The new rules make Quebec the most lucrative option for foreign producers; Ontario and B.C. offer a 25% tax credit, but only on labor costs.

The new rules will once again make Montreal an attractive location for films set in New York or other large American cities, says Bissonnette. ‘Montreal often used to be an excellent stand-in for New York, but it’s become inexpensive to shoot in New York because of state tax incentives, so of course Americans opted to film there.’

Like Ontario, Quebec’s film and TV production industry has been slow for the past few years, because of state tax incentives and the parity of the American and Canadian dollars in 2008. There was only $65 million of Hollywood production in Quebec last year, down from $265 million the year before.

Will other provinces bring in similar tax rules? ‘All provinces are going to have to take a look at what Quebec has done. Ontario can’t ignore it,’ says Ken Ferguson, the president of Filmport, Toronto’s largest studio. ‘What’s always a concern is the race to the bottom. What was killing us were U.S. tax credits, but the current economic situation has wrestled this under control somewhat, some jurisdictions are reducing their credits,’ says Ferguson.

‘It’s a bit of a surprise seeing a province jump forward with such a major initiative.’