‘The federal tax credit is laughable,’ says Arnie Gelbart, founder and president of Galafilm. The Montreal company has produced such features as Thom Fitzgerald’s The Hanging Garden and Lea Poole’s The Blue Butterfly as well as several major TV documentary series including The Great War and The Valour and the Horror.

Gelbart is referring to the Canadian Film or Video Production Tax Credit, the CAVCO-administered, Canada Revenue Agency-controlled labor tax credit that is the foundation of Canada’s tax-based film and television production stimulus system. The CPTC is the granddaddy of Canadian soft money… at least on paper.

The particular cause of Gelbart’s ire will be familiar to any Canadian producer: three words that follow the description of the CPTC on the CAVCO website: ‘net of assistance.’ Producers have another word for it: ‘grind.’ Federal income tax rules reduce the value of a production by the amount of assistance received.

As the provinces have boosted their production tax credits, the federal contribution has shrunk. Oh, the 20% tax credit on labor costs is still a 20% tax credit so the federal government can be seen to be a stalwart supporter of the industry. But the devil is in those three words.

Gelbart explains: ‘When you look at the finance structure of a Canadian-content feature film, Telefilm is in for 40%, the Quebec tax credit will be good for 17.5%, SODEC provides another 20%…’ Add the numbers up and the percentage of the budget that’s eligible for the CPTC delivers a tax credit that accounts for less than 2% of the production cost. On Gelbart’s latest production, a thriller entitled The Kate Logan Affair, the CPTC amounted to 1.96% of the $2.6 million budget.

The grind effect negates what the provinces are doing. As Quebec and Ontario play King of the Production-Inducement Castle and the Canadian dollar rises against the greenback, producers are right to question the utility of the CPTC. The Canadian-content rules and the tax incentives are all meant to stimulate a Canadian production sector.

But then see it from the Department of Finance’s point of view. Finance exists to collect tax money, and every cent that comes into the treasury is meant to stay there. It doesn’t seem to be a political issue: the credit bridges Liberal and Conservative governments. The disconnection may be symptomatic of a systemic antipathy within the accounting culture. It must be aggravating to imagine all those whining producers ‘double-dipping.’

‘From a tax policy perspective, a credit or deduction should be given only in respect of costs that have actually been incurred by the taxpayer (i.e. not funded or reimbursed through government assistance),’ wrote Jack Aubry, a Finance Department spokesperson, in an e-mail. ‘Rules reflecting this policy have been a feature of the Canadian tax system for many years.’

Aubry pointed out that such rules apply across the breadth of federal economic stimulus: capital cost allowance, scientific research and experimental development tax credits, and on and on. And that’s regardless of the form of the government assistance received and the level of government that provided the assistance.

‘We get lots of suggestions as we prepare the budget and we consider them all,’ writes Chisholm Pothier, director of communications for Finance Minister Jim Flaherty. ‘But we don’t comment on them before the budget.’ He adds, ‘There’s an extensive pre-budget consultation leading up to the budget, it’s open to anyone and we encourage interested parties to participate.’

Indeed, the CFTPA did participate. In August, the producers’ body submitted its suggestion that the feds enhance the CPTC from 25% to 35% and the Production Services Tax Credit from 16% to 26%, eliminate the grind, and move from a labor base to a production cost base, as Quebec and Ontario did.

It’s not the first time the CFTPA has made this modest proposal. But as the provinces pony up the disparity is too much to ignore. Says Toronto producer Steve Hoban: ‘Every time the provinces bump up their tax credits, the feds save money.’

And it’s not like film and television isn’t a good investment. Alberta Minister of Culture and Community Spirit Lindsay Blackett told me his province sees an ROI of $6 to $10 for every dollar invested in the Alberta Film Development Program.

Tax credits are supposed to get production going. The grind is unnecessary friction.