Canadian Film or Video Production Tax Credit – What is it and Should You Apply?
Funding the production of your Canadian television program or movie will likely include tax credits. In Canada, there are two general categories of film and television tax credits — Canadian content and production services tax credits.
Both are intended to develop the Canadian production community however the content credit, has additional requirements designed to encourage the creation of Canadian programming, requiring that the production be “Canadian content” and to be exploited for the benefit of Canadians.
Both tax credits play an important role in the creation of programming made by Canadians. Two key points about the tax credits is that they are “refundable” (paid to the producer as opposed to simply reducing the producer’s tax payable) and they are calculated as a percentage of eligible production labour costs.
Tax credits are both provincial/territorial (except PEI and the NWT) and federal. Generally speaking, a production will seek to access both federal and provincial/territorial tax credits, though any amount of provincial/territorial tax credit received will reduce the amount of the federal tax credit.
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The following are some FAQ about the federal content tax credit — the Canadian Film or Video Production Tax Credit (CPTC).
How much is the CPTC worth?
Tax credits are calculated based on a production’s eligible cost of production and its net labour expenditures. The CPTC is 25% of the qualified labour expenditures for an eligible production.
The qualified labour expenditures may not exceed 60% of the cost of production minus assistance. So, the CPTC cannot exceed 15% of the total cost of the production after the deduction of any assistance.
What Does “Assistance” Mean?
Assistance is defined in section 125.4 of the Income Tax Act. It includes for example: government equity, government grants, private grants, and provincial tax credits. It does not include CMF Licence Fee Top-Up, private equity from broadcasters or private film funds
Example. In a typical scenario in which an Ontario producer claims both the provincial and the federal content tax credits, if your production costs are $1,000,000 and your qualified labour expenditures are $600,000, assuming a 35% provincial tax credit rate, your provincial tax credit would be roughly $200,000. Your cost of production net of assistance is therefore $800,000.
The maximum eligible production cost for the federal tax credit is 60% of that amount, $480,000 (even though the labour expenditure is still $600,000). Multiplying the lesser of the two ($480,000) by the federal content tax credit rate of 25% gives a federal tax credit of $120,000. That means your total combined provincial and federal tax credit is roughly $320,000, which represents 32% of your total production costs.
What does CAVCO require to certify a production as an eligible production?
Some of the key eligibility criteria are:
· The production company must be a prescribed taxable Canadian corporation;
· The production must achieve a minimum of 6 key creative points on the Canadian Content Point System, the director or screenwriter must be Canadian and one of the two lead performers must be Canadian (points are different for animated productions);
· The producer or producers must be Canadian and meet CAVCO’s production control guidelines;
· There must be an agreement with a Canadian broadcaster or Canadian distributor to show the production in Canada within two years;
· The production must not be one of the ineligible genres (news, talk show, reality television, sports event, advertising, etc.);
· The Canadian producer must retain exclusive worldwide copyright ownership in the production;
· A Canadian producer must control development of the project from the time the producer acquires rights in it; and
· 75% of all production and post-production service costs must be paid to Canadians and 75% of the post-production must take place in Canada.
What Does the CPTC Application Process Look Like?
The CPTC is jointly administered by the Canadian Audio-Visual Certification Office (CAVCO) and the Canada Revenue Agency (CRA). CAVCO will issue a certificate of production (Part A) confirming that the production is a Canadian film or video production and estimating the production’s qualified labour expenditures. A Part A certificate can be issued before or during production.
Once the production is complete, CAVCO will issue a certificate of completion (Part B) confirming that the production continues to meet the requirements. The producer submits a tax credit claim to CRA as part of its corporate Income Tax return to receive the tax credit, based on either a Part A or a Part B certificate.
How Can I Get Paid Sooner?
If the anticipated value of the tax credits is needed to fund the costs of production, a bank or other lender might finance them (typically to 90% of the estimated full value of the tax credits. The producer receives a loan from the bank with the tax credits as the source of repayment.
This blog provides only a general overview of the CPTC. Before proceeding with preparing a financing plan, be sure to read the CPTC Program Guidelines and speak with an experienced advisor or CAVCO.
Future blogs will cover Ontario’s content tax credit — the Ontario Film or Television Tax Credit (OFTTC). In the meantime, you can review the OFTTC Program Guidelines.
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* This blog is for general informational purposes only and is not to be construed as legal advice. Please contact Edwards Creative Law or another lawyer, if you wish to apply these concepts to your specific circumstances.
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