Norman Bacal is a partner in the law firm of Heenan Blaikie, based in Toronto.

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The Ontario tax credit presented May 7 will act as a replacement of the Ontario Film Investment Program. The new scheme is a refundable film and television tax credit which will function in a manner similar to the federal tax credit for Canadian film or video productions.

The Ontario credit will generally be at a rate of 15% of qualifying labor expenditures incurred after June 30, 1996. First-time producers will be eligible for a 30% rate. Like its federal counterpart, qualifying labor expenditures cannot exceed 48% of the cost of the production.

Maximum 7.2%

As a result, the effective tax credit will be a maximum of 7.2% of the budget (or 14.4% in the case of first-time producers). Since the credit grinds down the cost of production for the purposes of the federal tax credit, the maximum federal credit will be reduced from 12% to 11.1%. The combined federal and Ontario tax credits do not exceed a maximum of 18.3% of the cost of an eligible Ontario production (24.7% for first-time producers).

The Ontario tax credit will apply to productions for which principal photography commenced after May 7, 1996. The credit will be assignable although there is some question at this time whether the limitations on assignability will mirror those under the recent federal budget.

The credit is to be applied to outstanding Ontario tax liabilities of the corporate producer and any excess will be refundable subject to corporate minimum tax. As a result, corporations which are entitled to other tax preferences may find the credit is not fully refundable.

Only qualified firms

Only a qualifying production company is entitled to the Ontario tax credit. A qualifying production company is an Ontario-based corporation which otherwise qualifies for the federal tax credit.

Eligible Ontario productions must qualify for the federal tax credit and must also be certified by the Ontario minister of citizenship, culture and recreation to an eligible Ontario production.

To obtain certification, a production must meet tests which are similar to the previous ofip tests; that is, the production must qualify for at least eight points under the federal regulations, the producer must be an Ontario producer, at least 75% of all production costs must be Ontario costs, the production must be shown in Ontario by an Ontario-based theatrical film distributor or Canadian broadcaster within two years, and all principal photography and post-production must occur in Ontario.

There continues to be more flexibility for treaty coproductions in that the requirement is that either principal photography or post-production must occur in Ontario. In addition, principal photography of documentary productions may occur outside Ontario.

The following types of productions will be excluded from qualification as an eligible Ontario production: magazine format programming, variety shows, educational or instructional programming, tv programming not shown in primetime (except children’s) and service productions.

Presumably, the guidelines relating to service productions under the ofip rules will continue to apply for the Ontario tax credit.

The determination of labor expenditures and qualifying labor expenditures will be harmonized with the federal rules, subject to the expenditures being incurred after June 30, 1996 and payable to individuals in Ontario.

Presumably for federal purposes, the Ontario tax credit will be treated like its Quebec and Nova Scotia counterparts such that the Ontario tax credit will not be considered as assistance for the purpose of reducing labor expenditures for federal tax credit purposes. Similarly, qualifying labor expenditures for Ontario purposes will not be reduced by the federal credit.

It is worthwhile noting that the 30% rate for first-time producers will be limited to the first $240,000 of qualifying labor expenditures. All amounts in excess of $240,000 will qualify for the 15% rate.

Producer cap

The producer cap instituted under the ofip program will also be carried forward into the tax credit program. The maximum will be $2 million per corporation or associated group for all productions commenced in the year and a maximum of $1.5 million per production for an eligible television series and $500,000 for all other eligible Ontario productions.

A first-time producer is defined as a producer who has no more than one previous screen credit in a commercial production and has not participated as a producer in a production that qualified for the Ontario tax credit. The production must be a documentary or a standalone television production suitable for a minimum 30-minute time slot.

Finally, the ofdc will administer the tax credit system. A certificate of eligibility must be obtained from the ofdc. That certificate must be filed with the corporation’s provincial income tax return when the credit is claimed.