Montreal: The Quebec minister of finance has announced some important modifications to the refundable film and TV production tax credit, including a requirement that claims related to producer fees and administrative costs, and goods and services are admissible only if they are actually paid out. The new ruling takes effect Sept. 1.

In its July 5 Information Bulletin, published in both French and English, the Finance Department clarifies several problems resulting from contested interpretations by tax authorities. The net effect of the changes and clarifications is to ‘bring back stability and greater certainty with respect to the amounts [of admissible credits] that can be included in the financial structure of a picture,’ says Stephane Cardin, SODEC tax-credit director.

Following a consultative review process examining the fundamental structure of the Quebec film and TV tax-credit program and involving Finance, Revenue and SODEC, the finance minister has decided not to restrict the production credit exclusively to labor-related costs.

The changes harmonize Quebec rules with federal legislation in two respects.

The old rule allowing producers to include up to 10% of the production and post-production schedules (B + C) in the form of producer fees and administrative overhead without an actual payment (referred to as ‘expenses deemed incurred’) is changed to the effect producers may only claim those expenses actually paid out, in conformity with the federal credit, says Cardin.

The rule change also disallows unpaid claims made on goods and services. For example, a camera owned by a producer who charges a specified amount related to the cost of renting the camera without actually making a payment is no longer admissible. Under the new rules, the producer will have to rent the camera from a third party, or establish an inter-company service provider and make an actual cash (and taxable) payment to that company, says Cardin.

On the issue of ‘unpaid’ producer fees and overhead charges, the new ruling clarifies claims made for a number of past productions recently under review by Revenue. ‘It has a retroactive effect in that most of the amounts that were in question [under review] will not be paid,’ says Cardin.

In this regard, the finance minister has introduced compensation for the reduction.

‘If you file today, the rate of [the overall] tax credit is 15% [calculated as one-third of labor costs up to a maximum of 45% of total costs, or 15% of total costs]. If you file Sept. 1, it is 162/3% [or one-third of labor up to 50%], because the idea here is to be revenue neutral,’ says Cardin. The ruling, which states ‘deemed incurred expenses’ are no longer eligible, is effective for all applications filed with SODEC starting Sept. 1, 2001.

Revenue’s interpretation restricting admissible expenses to the range of activities covering the period from development (script writing) to the production of a film’s answer print has been clarified by Finance to allow costs typically incurred at a later date, including auditing and legal fees, subtitling and dubbing costs that were otherwise admissible in tax law but in practice denied in current Revenue interpretations. ‘And again, this will affect the outstanding claims [under review] by Revenue,’ adds Cardin.

Finance’s July 5 bulletin also extends the tax credit for live entertainment productions to include drama and comedy performances. Previous, only musical productions were admissible.

The modifications also introduce a tax deduction for individual foreign producers (and only producers) who may spend an extended period of time shooting in Quebec, and are not eligible for the 9% ‘waiver’ granted to foreign actors. The measure is intended to ‘ensure Quebec stays on the same level as Ontario and B.C.,’ says Cardin. *

-www.finances.gouv.qc.ca