Federal Tax Credit Programs for the Film and
Television Production Industry
Canadian Audio-Visual Certification Office (CAVCO)
BC Film, Television and Animation Industry
January 2015
Table of Contents
1. Overview
2. CAVCO Mandate
3. Program Administration
1. Overview of Operations
2. Risk Management
4. Environmental Scan
5. Risks to Maintaining Status Quo
6. Recent Legislative and Regulatory
Amendment
7. CAVCO Operational Policy
Priorities
1.
2.
Clarify who qualifies as a lead
performer
Certification of online-only productions
3.
Update genre definition
8. CAVCO Administrative Priorities
2
Overview

Total film and television production industry in Canada = 127,700 jobs and $7.6 Billion in
GDP for the Canadian economy in 2012-2013.1
 Support for Canadian productions
 1039 Canadian film and television productions produced in 2012/13 were
certified by CAVCO
 The total Canadian budgets for these productions was $2.3 billion.2
 Support for production in Canada
 180 film and television productions produced in 2012/13 received accreditation
from CAVCO under the PSTC program
 Total Canadian portion of budgets for these productions was $1.4 billion
 Support for coproductions
 56 treaty coproductions produced in 2012/13 were certified under the CPTC
program. The total Canadian budgets for these productions was $215 million

CAVCO must ensure that its program guidelines are aligned with the current realities of
the Canadian film and television industry
1
2
Source: Profile 2013: Economic Report on the Screen-based Media Production Industry in Canada, p.8
This figure includes 56 treaty co-productions certified under the CPTC program, with total Canadian production costs of $215 million.
3
Overview of the Canadian Film and Television Industry Policy Framework
Canadian content shapes the policy framework
Economic Considerations
Cultural Considerations
Film or Video
Production
Services Tax
Credit (PSTC)
Audiovisual
treaty
coproduction
Canadian
Film or
Video
Production
Tax Credit
(CPTC)
Telefilm
Canada
Canada
Media Fund
CBC
National
Film Board
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2. CAVCO Mandate


CAVCO and CRA co-administer two tax credit programs for the film and television industry:

The Canadian Film or Video Production Tax Credit (CPTC)
 a fiscal advantage based on labour costs to Canadian-owned production companies
producing Canadian content film and television productions
 Projected value of CPTC for 2013 is $265 million

The Film or Video Production Services Tax Credit (PSTC)
 a fiscal advantage based on labour costs for productions filmed or serviced in
Canada by either foreign or Canadian-owned companies
 Projected value of PSTC for 2013 is $110 million
CAVCO certifies treaty co-productions under the CPTC program




conform to treaty
relevant requirements of the Income Tax Regulations
As an alternative, CAVCO may issue a letter attesting to the production’s status as a treaty
co-production.
CAVCO certifies productions (Part A and Part B); CRA administers tax credits; Production
company applies to CAVCO to receive certification and demonstrate completion of production
and submits CAVCO certificate to CRA when filing annual corporate income tax return
5
3. Program Administration
3.1 Overview of Operations
 Each year, CAVCO processes approximately 2500 applications (2300 CPTC and
150 PSTC)
 Governed by Income Tax Act (s.125.4, s.125.5), Income Tax Regulations
(s.1106, s.9300), Investment Canada Act (s.26-28), Citizenship Act (subsection
2(1)), Immigration and Refugee Protection Act (subsection 2(1))
 CAVCO team of 41
 Fees paid by program applicants allow CAVCO to fully recover the cost of its
services.
 Online eSubmission application system
 Changes to program policies are announced through public notices (PN)
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3. Program Administration (cont.)
3.2 Risk Management – two types of audits
Canadian Content Certification Audit Program

to provide confirmation that Canadian content requirements have been met on
selected CPTC files (40 per year)

administered by the CRA and paid for by CAVCO

audits have consistently reaffirmed thoroughness and accuracy of CAVCO
review process
CRA fiscal audits

CRA conducts audits of the tax returns of selected production companies
based on:


its internal risk management policies and,
on the flagging of specific files by CAVCO
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4. Environmental Scan
a) Key film and television industry trends
Some trends have made it more challenging for CAVCO and the industry to determine whether
productions are eligible for tax credits:

Increased prominence of branding in productions and having to determine if it crosses line
into “advertising” (ineligible genre under Income Tax Regulations)

Blending of more than one genre in a production, e.g. elements of “talk show” (ineligible) with
elements of “variety” show (eligible)

Proliferation of “lifestyle” shows which producers submit as “documentaries”

New forms of production financing (e.g. corporate sponsorships, crowdfunding)

Increased use of online/mobile platforms to show Canadian productions

Canadians wanting to view content anytime, anywhere via multiple platforms

Heightened focus on marketing, fan-based strategies
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4. Environmental Scan (continued)
b) Challenges for CAVCO
 CAVCO updated program guidelines introducing new genre definitions (2010)
 This, in conjunction with a rapidly changing audio-visual environment, has made it
challenging for the industry to understand, and for CAVCO to administer, the tax
credit programs in a fair, consistent and modern way
 Uncertainty over CAVCO’s interpretation of genres has caused
 increase in pre-assessment requests
 increase in producer requests for meetings to discuss new projects
 CAVCO required to seek approval to publish public notices (PN) to clarify
program policies and requirements
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5. Risks to maintaining status quo
• Public perception
• Potential legal challenges
 Inefficient use of CAVCO resources
 Costs to industry
10
6. Recent Legislative and Regulatory Amendments
6.1 Modifications to Income Tax Act
 An 11-year process:
 announced in 2003, included in different legislative bills that died on the Order Paper
 Royal Assent on December 16, 2014 - amendments to sections 125.4 and 241 of ITA
 Finance allowed CAVCO and CRA to implement most changes in 2003 exception s241

Modifications include:
 Raising limit on base of qualifying labour expenditures to 60% of the total cost of a
production from 48%;
 Limiting eligible labour expenditures to Canadian citizens or residents;
 Allowing eligible labour costs to be incurred up to two years before principal
photography begins to include in-house development expenditures;
 Explaining that CPTC is not available to any production that has any connection to a tax
shelter arrangement;
 Specifying that government equity investments are treated as forms of assistance that
reduce the eligible cost of production; and
 Allowing the limited communication of certain information on CPTC-certified
productions (e.g. titles of productions, names of producers and key creative personnel)
(section 241)
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6.
Recent Legislative and Regulatory Amendments
6.2 Modifications to Income Tax Regulations
 Amendments to the Regulations came into force on November 13, 2014
following public consultation and publication in the Canada Gazette on
October 4, 2014
 Proposed new draft amendments to section 1106 of the Regulations will
prevent unintended interpretations by the CRA by making a clear
distinction between investment in, and copyright ownership in a
production
 Clarifying copyright ownership rules for productions
 Expanding the range of eligible Canadian investors in a
production
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6.2 Modifications to Income Tax Regulations (continued)
What changes were made with respect to “copyright ownership”?
1) The production company or a "prescribed person" may be a “copyright owner” of a
production
2) “Copyright owner”, for the purpose of the CPTC, is now defined as:
· “the maker” who owns “copyright”, as defined in sections 2 and 3 of the Copyright Act;
or
· a person to whom copyright has been assigned by contract under section 13 of the
Copyright Act
3) The right of a person (e.g. a non-Canadian distributor or investor) to receive profits
from a production does not, in and of itself, make them a copyright owner of the
production
4) The granting of an exclusive licence (e.g. to a broadcaster or distributor) is not an
assignment of copyright
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6.2 Modifications to Income Tax Regulations (continued)
Prescribed persons:
• Prior to the amendments, the list of prescribed persons was limited to certain entities
such as Canadian broadcasters, broadcaster distribution undertaking funds (e.g.
Rogers Documentary Fund) and federal or provincial funding agencies (e.g. Telefilm
Canada).
• The list of “prescribed persons” has been expanded to include:
•
•
•
a prescribed taxable Canadian corporation
an individual who is a Canadian (citizen or permanent resident) and
a partnership composed entirely of other prescribed persons
Rights:
• A prescribed person can:
•
•
•
•
invest in a production
participate in profits generated from a production, and/or
be a copyright owner in a production
A non-prescribed person can:
•
•
invest in or participate in profits from a production
But, cannot in any way, share in the copyright ownership of the production.
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6.2 Modifications to Income Tax Regulations (continued)
What will CAVCO examine when a non-prescribed person is involved in a
production?
CAVCO will review all relevant agreements to ensure that:
• there are no issues with the Canadian producer’s control of the production;
• the production company retains an acceptable share of revenues from the
production.
What evidence should you include with your application to demonstrate that a
Canadian corporation, individual or partnership is a prescribed person?
1) Prescribed taxable Canadian corporation: provide a “Private Company Declaration”
form
2) An individual who is a Canadian citizen or permanent resident must either:
a) provide a completed and signed “Individual Declaration – Prescribed Person” form or
b) have a clause in his/her agreement with the production company confirming that he/she is
Canadian.
3) A partnership must demonstrate that each of its members is a prescribed person listed
in paragraphs (a) to (h) of the “prescribed person” definition.
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7.
CAVCO operational policy priorities
CAVCO identified a number of short-term operational policy
priorities to modernize the tax credit programs and mitigate risks:
a) Clarify who qualifies as a “lead performer”
b) Certification of online-only productions
c) Update genre definitions
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7. a) Clarify who qualifies as a lead performer
Issue
 At least one of two lead performers be Canadian
 Industry misunderstanding as to what qualified as a “leading role”
Status
 CAVCO issued a PN with a call for comments in 2013
 Final Lead Performer Policy published as CAVCO PN 2014-01 on
August 29, 2014
Identifying who is a lead performer is a two-step process:
 1st identify all lead performers based on 3 criteria: time on screen
(animation: length of time voice is heard), billing, remuneration
 2nd identify order, i.e., first, second, third lead performer based on
remuneration
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7. a) Clarify who qualifies as a lead performer (continued)
Key Points to Remember:

The 3 criteria are not necessarily weighed equally, and may not run in parallel

Time on screen is considered the most important of the three criteria

Time spent by performer in background of scene not be counted towards the total time on screen

The “importance” of a person’s role within a production is not considered

How is performer billed in the opening and closing screen credits

Remuneration includes direct or indirect financial compensation, additional benefits, residuals, travel and living
expenses

May also consider how the lead performers are featured in publicity

Guest appearances: performance is evaluated if lead performance for the purpose of episodes

Cameos: brief appearance of a known person always considered a minor role

Once lead performers are identified, remunerations are used to rank them



Billing and time on screen are no longer considered at this point in the analysis
One point given for Canadian lead performer receiving either the highest or the second highest remuneration
If a Canadian and a non-Canadian lead performer are remunerated equally, the non-Canadian lead performer will be ranked
above the Canadian
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7. b) Certification of Online-only Productions
Issue
 CPTC eligibility criteria require agreement with CRTC-licensed broadcaster or a
Canadian distributor to have production “shown in Canada” within two years (Income
Tax Regulations s. 1106)
 Current interpretation limited to traditional formats such as TV, DVD, Theatrical –
does not recognize increased use of online/mobile platforms
 “Shown in Canada” could be interpreted to include productions that are only going to
be shown online (e.g. a webseries licenced by the CBC that would only be shown on
cbc.ca)
Status
 CAVCO seeking approval to proceed with a proposal to allow the certification of
online-only productions
Considerations
 Interpretation already used by provincial tax credit agencies (e.g. B.C.)
 Interpretation aligns with current CBC/Radio-Canada, CMF, BDU strategies
emphasizing digital/mobile services
 Cost / estimated value of tax credits
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7. c) Update genre definitions
Issue

The Regulations list certain production genres that are not eligible for tax credits:
•
•
•
news, current events, public affairs
programming
talk shows
sports events
•
•
•
•
galas, awards shows
pornography
advertising
solicit funds
•
•
•
•
games, questionnaires or contests (exc.
minors)
reality TV
industrial, corporate or institutional
consists of stock footage (exc. Docs)

Definitions for these genres are not provided in the Regulations

CAVCO 2010 guidelines define these as well as eligible genres

There is uncertainty over the application of many current genre definitions – e.g. a production in respect of a
game, questionnaire or contest (ineligible)

There is also an increasing number of productions blending eligible and ineligible genres – e.g. a production
blending significant sports event coverage (ineligible) with behind-the-scenes documentary segments about
the athletes (eligible)

A new approach for determining what types of productions should be considered “advertising” (ineligible) is
needed, due to the increased prominence of brands and corporate sponsorship in productions
Status


CAVCO is seeking approval to issue a call-for-comments PN which would limit and update definitions
Provide industry with opportunity to comment on proposed changes, in accordance with standards of
administrative fairness
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8. CAVCO Administrative Priorities
 Execute new MOU PCH/Telefilm Canada regarding coproductions
 Streamlining processes
 Service standards
 New business line: Pre-assessments
 Consistency – advice, adjudication
 New tools/interaction with clients: survey, online payments,
webinars, news,
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How to Reach Us
• Director: Johanne Mennie
• Telephone: 1-888-433-2200 (toll free) or 819-934-9830
• General email address: bcpac.cavco@pch.gc.ca
• Website: pch.gc.ca/cavco
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