The U.S. vs. Canada: A Tale of Film Tax Credit Financing
We can almost hear the newspaper crier already – "Read all about it, read all about it ... No changes to Canada’s film tax credit financing!”
The Battle Over Film Tax Credits in the U.S.
What we are referring to is a rash of recent articles and TV news stories around the U.S. situation regarding film tax credit financing. Politicians in a number of states are waging a full-stage war in some cases to abolish the entire film tax credit system, taking away these valuable subsidies that have become intrinsic in financing many non-studio productions.
Canada's Unwavering Support for Film Tax Credits
That’s in the U.S. - That is absolutely not the case in Canada. One can argue all day about the merits and benefits the government in Canada (at the federal and provincial level) reaps via their non-repayable film tax credit grants, which currently are some of the most generous in the world, as well as efficiently administered.
We’re not going to get into that argument here – suffice to say that we understand the government to be very satisfied with the revenues they recoup via productions in film, TV, and animation being produced in Canada. That is why they provide a fully refundable tax credit for a qualifying corporation or project.
The Role of Tax Credits in Canadian Film Financing
Canadian producers and investors are still very bullish on film tax credits, and the financing of these tax credits is part of an overall strategy to get most independent productions financed and completed in the Canadian landscape, covering all ten provinces.
Tax Credits as a Lynchpin in Film Financing
We stated previously that tax credits in Canada are both available and generous. Canadian producers and owners use the tax credits as part of an overall strategy to finance their productions. It is certainly very unusual that any single project in either film, TV, or animation would be financed through just one vehicle, i.e. all equity, all debt, all tax credits, all pre-sales, etc. Therefore tax credits, due to their generous nature, are a lynchpin in the overall finance strategy for tax credits film financing.
Boosting Hollywood North: Tax Credit Increases
Tax credits were increased over the last couple of years, due in part to reinvigorate Hollywood North – aka Canada, which was starting to lose productions to Louisiana, New Mexico, Michigan, etc.
Federal and Provincial Tax Credits in Canada
Tax credits when properly accumulated, filed, and financed (financed at your discretion of course – you could wait for the cheque!) are a combo of federal and provincial in Canada. The key credit on the federal side is the Production Services Film tax credit, which finances up to 16% of your eligible labour. That credit is further augmented at the provincial level on a province by province basis. As an example in Ontario where a large majority of filming and production is done the rebate comes to an additional 25% of the total budget spend. (Manitoba has one of the most generous programs – 30% all-spend tax credit, or offset up to 65% of local labour costs on projects that start location spending/filming in that province!)
The Rise of Digital Animation Credits
We can be forgiven for sometimes not mention Digital Animation credits which in some cases go up to 42% or more of the total spend. Only several years ago digital animation was a weak sister to the industry, but it is gaining significant traction due to the popularity of animation, 3D, Shrek! etc. Many major animation productions are done in Canada directly by Canadian firms or offshoots of the well-known major animation studios.
The Clear Strategy: Utilize Tax Credits Wise ly
So the strategy and recommendation we make to clients are quite clear – understand what credit you are eligible for, select where your production creation or filming makes the most sense (Manitoba has very cold winters!) and finance your credits as a part of your overall cobbling together of a successful and profitable venture in film, TV, or animation.
Key Takeaways
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Film Tax Credit Significance: Understanding the importance of a refundable tax credit and film tax credits in Canada and how credits such as the video production tax credit play a pivotal role in financing film and TV productions.
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Government Support: Recognizing that the Canadian government, both at the federal ( Canada Revenue Agency ) and provincial levels, offers non-repayable film tax credit grants that are among the most generous in the world.
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Tax Credit Types: Familiarity with the different types of tax credits available, including federal and provincial credits, the television tax credit, etc and how they can be combined to support film financing.
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Tax Credit Increases: Knowing that tax credits have been increased in recent years for an eligible production to attract more production to Canada.
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Digital Animation Credits: Acknowledging the rise of digital animation credits and their growing importance in the industry.
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Financing Strategy: Understanding the recommended strategy for filmmakers, which involves utilizing tax credits as one of several tools in the financing process, alongside equity, debt, and pre-sales.
Conclusion: A Tool in Your Financing Arsenal
Is a film tax credit strategy the holy grail of your financing? Probably not, but, used as one tool among your equity, debt, and pre-sales strategy, you have a strong chance of pulling off a successful financing for your Canadian venture.
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your business financing needs.
FAQ
How do film tax credits work in Canada?
Canadian film tax credits are government incentives that provide financial support to film and TV productions, helping filmmakers cover production costs.
What makes Canadian tax credits unique?
Canadian tax credits are known for their generosity and efficiency, with federal and provincial levels offering substantial grants to filmmakers.
Why are tax credits important in film financing?
Tax credits act as a crucial component of a multifaceted financing strategy, often covering a significant portion of production expenses.
Can tax credits be combined with other financing methods?
Yes, filmmakers often use tax credits alongside equity, debt, and pre-sales to create a comprehensive financing plan.
Are digital animation credits also available in Canada?
Yes, Canada offers digital animation credits for eligible production corporations, which have gained prominence due to the increasing popularity of animation productions.
How can I apply for Canadian film tax credits?
To apply for Canadian film tax credits for qualifying production expenditures and eligible labour expenditures, you'll need to meet eligibility criteria, complete the necessary paperwork, and work with experienced professionals who can guide you through the process.
Are tax credits available for international filmmakers working in Canada?
Yes, international filmmakers can often access Canadian tax credits for a qualifying production company if they meet certain requirements and collaborate with local production companies in areas such as qualified Canadian labour expenditures in the film or video production business subject to income tax regulations.
Do tax credits differ between provinces in Canada?
Yes, tax credit programs can vary from province to province, for example ' eligible Ontario labour expenditures ' so it's essential to research the specific incentives available in your filming location - such as where principal photography takes place.
How long does it take to receive tax credit funds?
The processing time for tax credits can vary, but filmmakers can typically expect to receive funds after their productions are completed and the necessary paperwork is submitted.
Are there any restrictions on how tax credit funds can be used?
Tax credit funds are generally intended for production-related expenses, and there may be guidelines on how they can be utilized. Filmmakers should consult with tax credit authorities for clarity.
What is the Ontario Film and Television tax credit?
- OFTTC stands for Ontario Film and Television Tax Credit.
- It's a refundable tax credit for eligible Ontario labour expenditures by qualifying production companies for eligible Ontario productions.
- Generally, it's calculated as 35% of eligible labour expenditures, with an enhanced rate of 40% for first-time producers on the first $240,000 of labour expenditure.
- Productions outside of the Greater Toronto Area (GTA) or with at least five location days in Ontario for an eligible Ontario production, where 85% of location days are outside the GTA, get a 10% bonus on Ontario labour expenditures.
- Wholly animated productions with 85% of key animation in Ontario outside the GTA also qualify for a regional bonus.
- Qualifying production companies must be Canadian-controlled, have a permanent establishment in Ontario, and file an Ontario corporate tax return for a refundable tax credit based on their project
- Individual producers for a production company must be Ontario residents for tax purposes for the two calendar years before principal photography.
