Ontario wins tax credit war

Tax credit competition among Canada’s biggest production centers is hotter than ever.

B.C. recently increased its foreign production labor rebate to 33%, although the province continues to face a large incentive gap in comparison to Ontario and Quebec, both of which are seeing a production upswing since announcing lucrative 25% all-spend credits last summer.

Quebec film commissioner Hans Fraikin reports that just over a month into 2010, production volume is already double the $140 million in total activity for 2009, fuelled by big-budget service projects like Upside Down, starring Kirsten Dunst and Jim Sturgess, and the Jake Gyllenhaal sci-fi thriller Source Code.

‘My expectation is we will double last year’s volume in 2010,’ he adds.

Ontario is also reporting a rise in activity. Major U.S. projects currently shooting in the province include the thriller Red, with Bruce Willis and Morgan Freeman, and Dream House, starring Daniel Craig and Naomi Watts.

‘The all-spend credit equalized the playing field for Ontario vis-à-vis not just Quebec but states like Louisiana and New Mexico,’ notes Comweb Group chairman and CEO Paul Bronfman.

While B.C.’s labor rebate doesn’t come close to matching Ontario and Quebec, the local industry expects that the 33% credit will keep their long-term and loyal clients – the U.S. studios – shooting in the province. The rumor mill, for example, suggests that the sequel to Percy Jackson & the Olympians: The Lightning Thief and Night at the Museum 3 will land in Vancouver this summer.

‘We can be a bit more expensive because we have other measurable advantages that make us appealing,’ says Vancouver Film Studios president Pete Mitchell, pointing to the numerous large studio facilities and negotiated labor agreements with Hollywood as examples. ‘We offer predictability and a great product for a good price.’

However, the more price-sensitive independent features are expected to stay away from B.C. and opt for production centers with more lucrative credits.

‘For indie films in the $10 million and $40 million range, B.C. is not on the radar right now,’ says Shawn Williamson, partner at Vancouver-based Brightlight Pictures.

‘On a $10 million movie it makes hundreds of thousands of dollars difference if you shoot in Ontario instead of B.C.,’ he adds. ‘It’s difficult enough to finance indie features right now, so every producer is looking to jurisdictions where you can best access soft dollars.’

VFX is another area of the business seeing a tax-credit boom. B.C. just increased its labor-based VFX credit from 15% to 17.5% and Quebec responded just days later by offering foreign productions a 20% labor rebate on special effects and animation.

‘Vancouver is a big competitor for Montreal,’ admits Benoit Touchette, operations manager at Montreal’s Rodeo FX. ‘In addition to the credit, Vancouver has the advantages of proximity to L.A. and time zone, so we have to offer savings as well as quality of work. The recent VFX increase should help us compete.’

Shawn Walsh at Vancouver VFX house Image Engine says that as it now stands the slight difference among provincial VFX credits is ‘inconsequential’ and the playing field is level.

‘It’s a question of capacity, creativity, capability and areas of expertise that a shop brings to the table,’ he says. ‘The tax credit is considered in concert with many other factors.’

The gaming industry is also a competitive hot spot. Both Ontario and Quebec have been luring investment in video game development with labor rebates: Ontario’s credit is worth 35% to 40% of labor expenditures and Quebec’s incentive is 37.5%.

Now the B.C. government is giving the local gaming industry a shot in the arm with it’s first Digital Media Tax credit, set at 17.5%.

‘B.C. is one of the preeminent game development hubs in the world, but it has been challenging times,’ says Colin Macrae, spokesperson for the B.C. Interactive Task Force, made up of local gaming companies. ‘Other markets in North America, including Ontario and Quebec, have attracted investment in the video game industry, so this new tax credit is an important first step to get us back on track.’

Vancouver’s gaming industry has struggled over the past 18 months as a result of intense competition from other jurisdictions.

For example, Electronic Arts has been laying off staff in B.C. while growing jobs in Montreal where it can access a gaming credit.

‘The cost advantages can be a real deciding factor,’ says Macrae.

In the meantime, Ontario is also proposing to offer another incentive under its video game credit to lure game development: companies can opt to take advantage of a 35% rebate if they spend $1 million in labor per year. This will offer companies access to funding throughout the long gaming development cycle, as opposed to waiting to collect a rebate upon game completion.

And while the new 33% labor rebate is expected to keep the studios shooting in B.C., the future looks gloomy for the province’s domestic industry.

Brightlight, for example, has opened a Toronto office and plans to shoot all its projects in Ontario where it can access the 25% all-spend credit as opposed to a B.C. domestic labor rebate of 35%.

‘Ontario has won the battle for Canadian film and TV – at least in the short term,’ says Williamson.

Crawford Hawkins, executive director of the Directors Guild of Canada B.C. District Council, also expects B.C. producers to look outside their home province.

‘It’s hard enough to finance Canadian productions, so if a B.C. producer can go to Ontario and pick up a couple hundred thousand dollars it makes sense,’ he says. ‘They would be silly if they didn’t.’

Still, many in B.C. feel that the Ontario and Quebec all-spend credit is not sustainable over the long term.

‘When you look at the return for the province of Ontario when a film shoots there, it’s marginal, if not negative,’ says Mitchell. ‘I think the government of Ontario is taking a loss. The B.C. government won’t take a bath on every show, and as a taxpayer I get that.’