Note to readers: The tax legislation in this area is very technical, and is amended by administrative guidelines (known as public notices) published by the Minister of Canadian Heritage and the equivalent provincial agencies. To determine whether a taxpayer qualifies for one or more of the tax credits discussed in this article, a detailed analysis should be conducted.
Canada’s refundable film and television tax incentives are one of the many forms of government support provided to the film and television industry to promote investment in the development and distribution of film and television productions in Canada. Such government support has helped both Vancouver and Toronto earn the title of “Hollywood North.”
The first incentive—the Canadian Film or Video Production Tax Credit—was introduced by the federal government in its February 27, 1995 budget. A second incentive—the Canadian Film or Video Production Services Tax Credit—followed in 1997. Since the initial introduction of these incentives by the federal government, all of the provinces, as well as the Yukon, have followed suit, introducing equivalent tax incentives to promote investment in their particular area.
This article provides a high-level summary of the federal and provincial tax incentives available in British Columbia and discusses some important considerations for those seeking to access these incentives. It does not review the many loans, grants, equity investments, and other sources of funding that are available from government (see note to readers).
Each of the tax incentives described below provides a refundable tax credit that is generally computed based on a percentage of “qualifying labour expenditure.” Eligible taxpayers claim the refundable tax credits by filing the appropriate schedules with the applicable federal and/or provincial income tax return. Before submitting a claim, taxpayers must first obtain specific government certificates and appropriate supporting documentation. The discussion below highlights the circumstances in which a taxpayer can qualify for each particular tax credit.
Canadian Film or Video Production Tax Credit (CPTC)
The CPTC provides a refundable tax credit equal to 25% of the qualified labour expenditure (to a maximum credit of 60% of certified production costs) to a taxable Canadian corporation whose primary business activity is the production of Canadian certified films or videos carried on through a permanent establishment in Canada.
A film or video production must meet a number of criteria to receive a certificate from the Minister of Canadian Heritage (the minister). Among the criteria:
- The producer must be Canadian;
- A certain number of the production’s other key personnel must be Canadian;
- At least 75% of the costs for production-related services must be payable to Canadian individuals;
- At least 75% of the costs incurred for post-production services must be provided in Canada;
- The corporation must have copyright ownership of the certified production for at least 25 years;
- The corporation must retain an acceptable share of revenues from the production’s exploitation in non-Canadian markets; and,
- The corporation must have control of the initial licensing of the production’s commercial exploitation.
Canadian Film or Video Production Services Tax Credit (PSTC)
The PSTC provides a refundable tax credit equal to 16% of the qualified labour expenditure to a corporation whose primary business is a production business or production services business carried on through a permanent establishment in Canada.
Unlike the CPTC, the PSTC can be claimed by a foreign corporation for a film or video production as long as:
- The film or video production is an accredited production (evidenced by obtaining an accreditation certificate from the minister); and,
- The corporation is an eligible production corporation. To be eligible, the corporation must either own the copyright in the accredited production throughout the period during which the production is produced in Canada, or contract directly with the owner of the copyright in the accredited production to provide production services.
A production that receives CPTC is not eligible for PSTC; however, a corporation that is claiming CPTC for one production can claim PSTC for another (assuming all other conditions to qualify for the PSTC are met).
BC Film and Television Tax Credit (FTTC)
The FTTC legislation provides five different refundable tax credits to BC-based, Canadian-controlled, taxable Canadian corporations, whose primary business is a film or video production business carried on through a permanent establishment in Canada. These refundable tax credits range from 35% of the qualified BC labour expenditure for the basic tax credit to in excess of 50% of the qualified BC labour expenditure when the basic tax credit is accessed together with the regional, distant location, or film training tax credits, or the digital animation or visual effects (“DAVE”) tax credits.
While the FTTC has similar criteria to the CPTC in many respects, it is more restrictive. With the FTTC:
- The eligible production corporation must have a permanent establishment in BC;
- The labour expenditure qualifying for the credit must be paid to BC-based individuals;
- The producer must be a BC resident; and,
- At least 75% of the production costs must be paid to BC individuals or corporations.
BC Production Services Tax Credit (BCPSTC)
The BCPSTC provides a refundable tax credit equal to 33% of the qualified BC labour expenditure to a corporation whose primary business is a production business or production services business carried on through a permanent establishment in BC. There are also regional (6%), distant location (6%) and DAVE (17.5%) production services tax credits that may be accessed together with the BCPSTC.
The criteria for claiming this tax credit are similar to those for the PSTC.
AdvantageBC International Business Centre (AdvantageBC)
BC has a unique program legislated by the International Business Activity Act (IBAA)and promoted and managed by a not-for-profit society known as AdvantageBC. Under the IBAA, corporations that are registered in this program and carry on various qualifying activities with non-residents through a permanent establishment in BC may be eligible for a full refund of the BC taxes paid on the net income earned from these qualifying activities. Revenues derived from the selling, assigning, or licensing of rights to a non-resident person to distribute a film or television production outside of Canada, or revenues derived from exploiting anything related to the production outside of Canada (including, for example, merchandise), may qualify under the IBAA. Corporations undertaking such activities should consider registering for this program.
Matters to consider in structuring a production
Numerous questions need to be asked before structuring a production to qualify for the tax incentives highlighted above and before performing an analysis of the exposure to Canadian or foreign income and indirect taxes. The following are some of the items that need to be considered:
- Who will own the worldwide copyright of the production and control the initial licensing of the production rights?
- Who will be the producer and other key personnel of the production?
- How will the production be financed?
- How will the production rights to both the Canadian and non-Canadian markets be exploited?
- Where will the production be filmed and for how many days, and where will services relating to the production be performed?
- What expenditures will be incurred on the production, and to whom will these costs be payable?
- What peripheral goods or merchandise could be manufactured and sold with respect to this production, and where would such activities occur?
Consider, for example, that the sale or licensing of distribution rights could result in income taxes being payable to a foreign country, or taxes being withheld by a foreign country. Consider that if you have non-resident persons rendering services in Canada with respect to a production, you may need to deduct or withhold taxes on the payments to such persons. And if you are filming part or all of your production in a foreign country, you must understand the exposure this will create to income taxes in that country.
The fine print
The lucrative tax incentives and programs offered by Canada’s federal and provincial governments have helped make the Canadian film and television production industry the vibrant industry that it is today. However, the rules related to this kind of support are complex. A thorough tax analysis should be conducted to understand both the incentives available and the tax liabilities that could arise to both the production company and its personnel.
George D. Kondopulos is a tax partner with KPMG in Vancouver, where he specializes in providing services to a wide variety of public and private film and media companies on domestic and foreign tax and business matters.
- Shortly before this magazine went to press, the BC government announced an expansion to the scope of the DAVE tax credit to include eligible post-production activities for productions where the principal photography begins on or after March 1, 2015. [Error caught by readers after publication.]