Vancouver: Canadian film lobbyists expect the federal government – in another last-minute, do-or-die scenario – to resolve once and for all the long-burning issue of foreign actor taxation before the holiday break this month and just days before stepped-up tax enforcement is set to begin Jan. 1.

Instead of being forced to file full tax returns, foreign actors working in Canada will still pay a withholding tax to the Canadian Customs and Revenue Agency. The question is how much will the new rate be?

At press time, sensitive negotiations between the ad hoc committee called the Motion Picture Production Industry of Canada and federal tax authorities were ongoing, delayed significantly by the timing of last month’s federal election.

mmpic lobbyists want a flat tax of 19% or 20%. The government wants 23%.

Previously, foreign actors paid a 15% withholding tax on their performing income, a concession allowed by tax authorities principally to enable the film industry to grow. But in the mid-’90s, the auditor general put the squeeze on the ccra to address non-compliance in the booming film sector and compel foreign actors to file full tax returns. That prospect, which threw the service industry into crisis two years ago when talk of stricter enforcement became reality seemingly overnight, would lead to higher tax bills.

Specifically, California residents face the specter of double taxation since the Golden State isn’t a signatory to a reciprocal tax treaty with Canada like other u.s. states. California residents at home can deduct foreign tax paid up to 20% of foreign income.

mmpic has contended that full tax compliance with tax rates of about 38% will undo the billion-dollar service production sector in Canada because the cost of indemnifying actors against greater Canadian tax makes Canadian location shooting too expensive.

Here’s a crude example:

An actor gets paid $1 million to perform in a show shot in Canada. The actor brings an entourage and significant allowable expenses totaling, say, $250,000.

Most likely, the actor is here as a u.s.-controlled corporation. Withholding tax is paid on the gross income and a full tax return would charge about 38% tax on net (or taxable) income.

So, the actor this month would pay $150,000 in withholding tax, be done with the Canadian tax system and get to deduct the tax in California because it falls under the 20% threshold. Less expenses of $250,000, the actor pockets $600,000.

With the mmpic proposal, the actor pays $200,000, is done with the Canadian tax system and can still deduct it at home. In this case, the actor pockets $550,000, accounting for expenses.

With the government’s proposal, the actor pays $230,000, is done with the Canadian tax system and can deduct only $200,000 at home. The balance of $30,000 is subject to California state tax. In this case, after expenses, the actor pockets $520,000 less whatever the California state tax is on $30,000.

With full tax filings, the actor would pay about 38% on net income of $750,000. That’s tax of $285,000. At home, the actor would have to pay tax again on $85,000. In this case, the actor pockets $465,000 less whatever California state tax is on $85,000.

Comparing tax rates this month to next month under full filing requirements, this actor will pay about $135,000 more in taxes, give or take.

Two eleventh-hour reprieves from the government over the past two years have left the 15% status quo intact until now.

‘There is a broad effort to deal with government to address this issue,’ says Tom Adair, executive director at the BC Council of Film Unions and a member of mmpic. ‘ccra has been progressive in dealing with the issues and we’re optimistic the government will create a positive resolution. The solution has to be transparent and equitable.’

Adds Adair: ‘We don’t want to spook the politicians because if they don’t do what they say they’re going to do, we’ll be mad as hell.’

But by Dec. 14, the federal Finance Ministry had not provided any assurances that foreign actors would be spared bigger tax bills for work done in Canada after New Year’s. Nor would it confirm that it was considering a new withholding tax remedy to the problem.

‘Department of Finance officials are aware of the issue,’ says Jean-Michel Catta, spokesman for Finance Minister Paul Martin, who, like the rest of Prime Minister Jean Chretien’s re-elected cabinet, kept his portfolio.

Meanwhile, Jeanne Flemming, director general of the International Tax Directorate, says she has heard nothing that would prevent enhanced enforcement from moving ahead in the new year. Actors with contracts signed in 2000 that carry over into 2001 would not be affected should cabinet not approve a new withholding tax.

A u.s. studio representative, unnamed because the u.s. industry has promised not to interfere, says the uncertainty has made Canada too hot for some producers.

‘They haven’t presented us with anything concrete,’ says the rep. ‘They have to come up with something that will make the tax conclusive as far as filing goes. There is budgeting [of new productions in Canada] going on, but there is a problem getting the numbers. Agents are looking for indemnification against extra tax, so the uncertainty is causing problems.’

However, a low Canadian dollar and threats of u.s. actors’ and writers’ strikes this spring may be offsetting jitters about foreign actor taxation.

The B.C. Film Commission reports that 23 productions are scouting Vancouver for starts in early 2001 – a volume of interest that is actually higher than a year ago.

To wrap up the foreign actor tax issue, the federal cabinet will have to make an executive order to delay for a third time the implementation of by-the-book tax enforcement beyond Jan. 1 and then make a legislative amendment to allow the ccra to charge the new withholding tax. *